Brazil's Potential Growth Rate

By Marcela Ayres

WASHINGTON (Reuters) – Brazil's government is considering calculating the country's potential growth rate alongside the official GDP to demonstrate the potential for robust economic expansion without triggering inflation, according to Planning Minister Simone Tebet.

Speaking on the sidelines of the IMF and World Bank annual meetings on Wednesday, Tebet remarked that Brazil's interest rates should not be increased merely based on the assumption that the economy has reached a point where growth contributes to inflation.

She noted that this is particularly relevant given that economists' forecasts for activity have consistently missed the mark over the past three years.

> "Our ministry and (think tank) IPEA will seek partnerships, including with BNDES, which has expressed willingness to join, to officially determine Brazil's potential GDP. If the IMF is talking about 2.5%, maybe it's 2.8%," she stated.

Estimating Brazil's economic growth potential would enable more balanced discussions regarding interest rates while allowing for the central bank's independence, Tebet explained.

Brazil's central bank has had disagreements with President Luiz Inacio Lula da Silva regarding the country's high interest rates, which he claims impede growth and job creation.

Recently, the central bank emphasized that unexpectedly strong growth was a concern that influenced its recent tightening cycle, which involved raising interest rates by 25 basis points to 10.75%.

On Tuesday, the IMF improved its forecast for Brazil's economic growth this year to 3.0% from 2.1% in its World Economic Outlook, marking the largest upward revision among major economies this year.

In its July country report on Brazil, the IMF projected the country’s medium-term growth at 2.5%, an increase of 0.5 percentage points from its previous estimate for 2023.

The government's estimate stands at 3.2% GDP growth for this year.

> "Brazil's potential GDP is no longer the 1.5% they used to discuss. The IMF is already predicting 2.5%, and if they've consistently underestimated, could it actually be 3%? That’s the question we need to ask," Tebet concluded.