POLL-Brazilian economy experiences soft landing as private spending cools

By Gabriel Burin

BUENOS AIRES, October 17 (Reuters)Brazil’s economy is suffering a soft landing as consumers tighten their purse strings to cope with high indebtedness on post-pandemic purchases and rising financial costs, a Reuters poll of economists showed. .

Economic activity has been boosted this year by President Jair Bolsonaro’s additional public spending measures aimed at improving his re-election chances ahead of a final ballot on October 30 that will decide who wins the top job.

However, Brazilians are now holding back in the face of rising interest rates on piles of unpaid personal debt, a side effect of the central bank’s tough anti-inflation policy.

Gross domestic product is expected to rise just 0.8% next year, from 2.7% in 2022, according to median estimates from a sample of 39 economists surveyed Oct. 4-13. In July, analysts were expecting growth of 0.8% in 2023 and 1.4% this year.

“While monetary policy is kept tight, we see more restrained consumption and investment, combined with weaker external demand, especially in 2023,” said Lucas Costa, Latin America economist at Continuum.

Bolsonaro launched debt forgiveness for consumers who splurged when business normalized after the coronavirus pandemic. His challenger, the former president Luiz Inacio Lula da Silvaalso offered debt forgiveness.

About 68 million Brazilians were blacklisted by rating agencies in August due to overdue debt. State-owned bank Caixa Economica Federal plans to restructure around 1 billion reais ($190 million) in defaulted credit.

With the outlook for capital spending and foreign trade also uncertain amid a tough international backdrop, investors are hoping the next administration will renew Brazil’s vow of fiscal restraint that Bolsonaro broke ahead of the vote.

WISHING MODERATION

Earlier this month, Lula came close to winning in the first vote, but Bolsonaro exceeded expectations. The former president is currently leading voters’ preferences for the Oct. 30 runoff by a margin of between 4.6% and 8%, according to two polls.

“Lula’s tenure for left-leaning politics has dwindled with first-round results closer than expected, while his views will need to moderate further if he is to appeal to centrist voters,” Amundi analysts wrote in a statement. report.

Elsewhere in the region, Mexico’s economy is likely to slow next year as well, growing just 1.2% from 2.0% in 2022. Yet unlike Brazil, where consumer prices are already falling, the inflation remains unanchored.

“Weaker growth prospects, gradual normalization of supply chains and lower commodity prices should support price momentum in 2023,” said Jose Sanchez, a Mexican economist and vice president of HSBC Global Research.

President Andres Manuel Lopez Obrador is implementing unorthodox measures to help reduce food costs through “collaborative efforts” with companies, an approach based in part on voluntary compliance rather than strict intervention.

This pales in comparison to the rigid economic controls that the Argentine Peronists have implemented since the turn of this century, which nevertheless failed to avert what has become the worst cost-of-living crisis in the Group of 20 great savings.

Argentines facing double-digit inflation this year struggle to make ends meet, while the poorest turn to recycling dumps or queuing to trade their goods in barter clubs.

A fresh bout of market instability in July was quelled by promises of new austerity measures that won aid from the International Monetary Fund but sparked social protests and further isolated a weakened government.

($1 = 5.2605 reais)

(Reporting and polling by Gabriel Burin in Buenos Aires; Editing by Ross Finley and Jonathan Oatis)

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