Brazil: Consensus revised down growth for next year

Florencia Vazquez, Marcelo Carvalho, Nader Nazmi, Gustavo Arruda - Market Economics
Daily Latam Spotlight | 20 Nov 2012 06:00 |

Brazil: Consensus revised down growth for next year.

BRAZIL

Local markets will be closed today due to a local holiday.

Consensus expects less growth ahead. Consensus has revised down 2012 growth to 1.52% from 1.54% in the prior week. For 2013, consensus anticipates growth below 4.0% next year (at 3.96% from 4.0%). We continue to believe that Brazil’s economy will continue to accelerate in the coming quarters, and partial data for October reinforce our view. We expect growth above 5.0% next year, thanks to monetary, fiscal and credit measures in place to spur growth.

On rates, consensus sees rates unchanged next year. Brazil’s central bank has cut rates in every meeting from August 2011 to October 2012 – an easing cycle of 525bp – and indicated in the latest minutes that rates would stay low for a long time. Consensus seems to endorse this scenario. We see a very different story. We believe that fairly robust monetary tightening will be needed to combat inflationary pressures next year and interest rates will end 2013 at 9.0%.

As for inflation, the 2012 consensus forecast edged down slightly to 5.45% y/y. While consensus expects almost flat inflation of 5.40% in 2013, our greatly out-of-consensus forecast shows inflation breaching the 6.5% tolerance ceiling. Rising wages, along with an upswing in growth, food price hikes, unanchored expectations and no help from the exchange rate, are conspiring to push inflation up next year.