The Brazilian economy is currently exhibiting significant volatility as various indicators forecast rising uncertainty and inflation, along with varying growth rates across different financial sectors. Recent reports reveal notable discrepancies between public and private banking credit growth, hinting at underlying structural challenges within the economic framework.
The Fundação Getulio Vargas (FGV) released alarming data indicating the Indicador de Incerteza da Economia Brasileira (IIE-Br) climbed to 115.4 points, marking the highest level since March 2023. This sparks concerns among economists as it enters what is identified as the "unfavorable range"—values above 110 points signal growing worries about the future. Anna Carolina Gouveia, the FGV economist, shared insights on this development, stating, "After registering moderate levels of uncertainty throughout 2024, IIE-Br has seen two consecutive increases..." highlighting the main motivations of this uncertainty linked to public spending and external factors, particularly shifts occurring within U.S. politics.
The IIE-Br measures various factors contributing to economic apprehension, comprised of media sentiment reflecting news discussions around economic uncertainty and expectations gauging the dispersion of forecasts for exchange rates and inflation. The media component of the index recently rose by 4.7 points to reach 113.2 points, its highest since May this year, contributing substantially to the composite index's surge.
Meanwhile, examining the lending environment offers another layer of complexity. Contrary to expectations of intensified lending from public banks under President Lula's administration, data from the last twelve months until September revealed a modest growth of only 4.7% from state banks for corporate credit. This contrasts sharply with the impressive 8.8% growth observed from private banks, which have come to dominate the credit market, holding around 66% of total banking credit to corporations.
The strategy seen among companies is increasingly shifting away from traditional banking loans toward capital markets. Recent statistics show the total amount of bank loans reached R$ 2.877 trillion, marking only 6% annual growth. Conversely, fundraising efforts via capital markets, utilizing private securities and share issues, skyrocketed to R$ 731 billion—4.5 times the volume of bank loans during the same period. This growing trend suggests companies are favoring these routes for lower-interest options over conventional bank funding, reflecting broader changes within financial behaviors following the pandemic.
Looking forward, the Brazilian economy's growth forecast for 2024 has been adjusted positively, now estimated at 3.5%. This forecast arises following the unexpected growth observed during the third quarter of 2024, where the Gross Domestic Product (GDP) expanded by 0.9% when compared to the previous quarter. This is supportive of expectations set by the Banco Central, and continues to confidently reflect Brazil's economic resilience.
Nevertheless, inflation expectations pose significant concerns. The latest Focus Bulletin signals rising inflation predictions for 2024, now adjusted from 4.89% to 4.91%, surpassing the Banco Central's ceiling target of 4.5%. Commenting on this situation, the central bank has acknowledged the possibility of inflation exceeding this ceiling well beyond 2024, thereafter projecting 50% chances of such outcomes for 2025. Recent inflation data also highlights pressures stemming from food-related expenses, driving overall inflation rates upward as of November.
The Selic rate, Brazil’s benchmark interest rate, currently stands at 12.25% per annum, following rising inflation concerns and global economic uncertainties. The Committee for Monetary Policy (Copom) indicated possible subsequent increases within the forthcoming months, hinting at rising rates until the end of March 2025 to combat inflationary pressures effectively. Economists demonstrate mixed expectations with suggestions these hikes could drive the Selic to levels near 15.0% within this tightening monetary policy environment.
Lastly, the Febraban (Brazilian Federation of Banks) reported growth rates for the credit market may decelerate to 9% by 2025, compared to the previously projected 10.5% for 2024. This slowdown reflects the caution banks are taking amid economic tightening and recovery pathways. Despite these assessments, they maintain optimism as Rubens Sardenberg from Febraban commented, "Even though this readjustment is natural, the numbers are still positive, reflected by high-single-digit growth nearly matching those of 2024." Such perspectives resonate with hopes for economic stabilization, though tempered with caution about potential inflationary and external market influences.
Overall, the Brazilian economic indicators for 2024-2025 present both challenges and prospects. The mix of raising uncertainty, shifts to alternative credit sources, upward inflation forecasts, and the adjustments to policy rates complicate the road to recovery. Observers will closely monitor how these factors interplay as Brazil positions itself to achieve sustainable growth amid global pressures.