Brazil has its foot on the accelerator, but is already feeling strong signs of engine heating. For the fourth consecutive year, in 2024, the economy is expected to expand by around 3%, but Brazilian production and imports are unable to keep up with the growth in domestic demand, driven by expanding salaries, pensions, pensions and government transfers.
The price of this growth is proving expensive for consumers and businesses: inflation and interest rates are rising.
The pace of economic activity continues to accelerate, even with the increase in the Selic rate. This Thursday (14), the Central Bank announced that economic activity grew 0.83% in September, compared to August, accumulating an increase of 3% in the last 12 months.
Financial market expectations for GDP growth and inflation in 2024 have been increasing since the end of 2023, when the Central Bank’s Focus Bulletin projection indicated an economic expansion of 1.5%. This week, it rose to 3.1%, from 3.9% to 4.62%.
The dynamism of activity can be seen in all sectors, including the job market and credit, and is driven by both supply and demand, highlights CM Capital.
For Sidney Lima, analyst at Ouro Preto Investimentos, strong domestic demand tends to put pressure on inflation, which could influence monetary policy. “This scenario reinforces the need for vigilance by the Central Bank, as intense economic activity may require additional adjustments in interest rates to contain inflation,” he states.
Government spending fuels economic growth
The current economic expansion is mainly driven by the increase in fiscal spending under the government of Luiz Inácio Lula da Silva (PT). There were increases in social programs, such as Bolsa Família and the Continuous Payment Benefit, in addition to releases of court orders defined by the STF at the end of 2023.
The heated scenario motivated companies to expand their workforce. Data from Novo Caged show a 24% growth in the creation of formal jobs in the first nine months of the year, compared to the same period in 2023.
the lowest for the month since the beginning of the historical series, in 2012. According to IBGE, the total income of employed people over 14 years of age reached R$332.8 billion in September, the highest value for the month since 2012, representing a real increase of 7.7% compared to the previous year.
Family consumption grows continuously throughout 2024, as pointed out by FGV Ibre. The institution’s GDP Monitor identified a 5.1% increase in family consumption in the quarter ended in August, compared to the previous quarter.
Inflation appears to be persistent amid economic growth
This scenario of expanding domestic demand also translates into high inflation. The consumer price index (IPCA), according to IBGE. It is the biggest increase since November 2023.
High economic activity was one of the factors that led the Monetary Policy Committee (Copom) to accelerate the increase in the Selic, which reached 11.25% at the last meeting, on November 8. , the organization highlighted that, despite some signs of moderation in trade and income, the job market and other sectors remain dynamic, which makes it difficult for inflation to return to the 3% target, with a tolerance of 1.5 percentage points upwards or downwards, defined by the CMN.
The price increase is widespread: 61.5% of items surveyed for the IPCA increased in October, the highest percentage since January, according to IBGE.
Another relevant factor is that Brazil is already exceeding its potential growth rate, the limit beyond which GDP grows without putting pressure on inflation. According to Maurício Une, chief economist at Rabobank for Latin America, the ideal rate is between 2.5% and 2.7%. Carlos Lopes, economist at BV bank, highlights that GDP growth as strong and prolonged as the current one is not sustainable in the long term, a situation similar to that observed between 2005 and 2008, interrupted by the global financial crisis.
Companies project growth, but face rising costs
A recent Central Bank survey of non-financial companies, released at the end of October, shows that companies expect robust economic growth for this year, but also foresee high inflation and express concerns about rising costs, especially labor costs. .
According to the Fipe Salary Meter, 86.8% of salary negotiations in the first nine months of the year resulted in increases above inflation, with an average of 1.3%.
In this scenario, companies are already estimating price adjustments above inflation. “It is important to assess whether companies can maintain their profit margins in the face of rising costs”, warns Anderson Silva, from GT Capital.
Another point of attention is default, which rose again in September after two months of decline. According to Serasa Experian, 72.6 million CPFs were negative, corresponding to 44.9% of the adult population. Among companies, 6.9 million have debts overdue for more than 90 days.
