Brazil’s economy is projected to remain subdued in 2023, with several factors such as slower employment growth and tighter lending conditions expected to constrain consumer spending and investments. Against this backdrop, the country’s economic growth is set to slowdown from 3% in 2022 to 0.8% in 2023, forecasts GlobalData, a leading data and analytics company.

According to the Brazilian Institute of Geography and Statistics, employment rate declined to a four-month low of 56.7% in January 2023. Along with this, the Central Bank had increased the policy rate by 450 bps during the period from January 2022 to February 2023, which is further impacting the economic expansion and domestic demand.

The increase in the cost of borrowing discourages individuals from taking out loans to make large purchases, such as homes, cars, or other big-ticket items. Real household consumption expenditure, which grew at an average of 3.8% during 2021-22, is forecast to slowdown to 1.6% in 2023, according to GlobalData.

Maheshwari Bandari, Economic Research Analyst at GlobalData, comments: “Tight monetary policy which has been increased from just 2% in February 2021 to 13.75% in August 2022 and had remained unchanged since then was effective in reducing the inflationary pressure by more than half from 12.1% in April 2022 to 5.6% in February 2023. If the inflationary pressure reduces further, the Brazilian central bank may start reducing the high policy rates.”

GlobalData’s latest report, “Macroeconomic Outlook Report: Brazil,” reveals that government unveiled its first set of economic policies in January 2023, outlining several suggested tax increases and spending reductions with the goal of reducing the primary deficit to or below 1% of GDP. Also, if central bank reduces policy rate, the refinancing cost of servicing debt will also decline, which will aid in narrowing the overall government deficit.

In terms of sectors, mining, manufacturing, and utilities contributed 19.8% to the gross value added (GVA) in 2022, followed by financial intermediation, real estate, and business activities (15.6%), and wholesale, retail, and hotels sector (15%). According to GlobalData, the three sectors are expected to grow by 7%, 6.5% and 4.7%, respectively, in 2023, slower compared to 9%, 8.3% and 6.1% in 2022.

According to World Travel and Tourism Council (WTTC), tourism industry in Brazil contributed above 6% to the GDP in 2021 and created one in every 11 jobs in the country. GlobalData expects the tourism sector to grow further with the projected increase in the foreign arrivals from 222 million in 2021 to 300 million in 2023.

On the infrastructure side, data service provider of Brazil, Odata, received a loan of $30 million from IFC (a member of the World Bank Group) in January 2022 to expand the data center infrastructure to a wide range of industries and enhance the nation’s digital resilience along with sustainable economic recovery.

Brazil ranked 91st out of 153 nations in the GlobalData Country Risk Index (GCRI Q4 2022). The country’s score is in the manageable risk nations band (between 40 and 50). Brazil’s overall risk score (49.4 out of 100) is higher than Latin America (48.6) and the world average (45). In the parameters of macroeconomic risk, demographic and social structure, Brazil’s score is higher than the average of Latin America.

Bandari concludes: “Brazil’s economic performance in 2023 is projected to be better than other Latin American peers including Argentina (0%), and Chile (-0.6%) due to the reopening of the China economy (accounted for above 30% of total exports in 2021) and better soyabean output (world’s largest producer). The soyabean exports are expected to rise in 2023 as producers are likely to use it for making edible oils amid the supply crunch due to Russia-Ukraine war.”