Financial market forecasts a 5.46% drop in the economy in 2020

The financial market forecast for the brazilian economy's fall this year was adjusted from 5.52% to 5.46%.
The estimated decline in GDP (Gross Domestic Product) – the sum of all goods and services produced in the country – is in the Focus newsletter, a publication published every week by the BC (Central Bank), with the projection for the main economic indicators.
The financial market has been down eight weeks in a row.
For next year, the expectation is for growth of 3.50%, the same forecast for 13 consecutive weeks. In 2022 and 2023, the financial market continues to project expansion of 2.50% of GDP.
- Inflation
The financial institutions consulted by the BC adjusted the projection for the IPCA (National Broad Consumer Price Index) from 1.67% to 1.71% this year. For 2021, the inflation estimate remains at 3% for 10 consecutive weeks.
The forecast for 2022 and 2023 also had no change: 3.50% and 3.25%, respectively.
The projection for 2020 is below the floor of the inflation target that should be pursued by bc. The target, set by the National Monetary Council (CMN), is 4% in 2020, with a tolerance range of 1.5 percentage points up or down. That is, the lower limit is 2.5% and the upper limit is 5.5%.
For 2021, the target is 3.75%, for 2022, 3.50%, and for 2023, 3.25%, with an interval of 1.5 percentage point up or down, each year.
- Selic
To reach the inflation target, the Central Bank uses as its main instrument the basic interest rate, Selic, currently established at 2% per year by copom (Monetary Policy Committee).
For the financial market, selic is expected to end 2020 at the current level (2% per year).
For the end of 2021, the expectation was adjusted from 2.75% to 3% per year. By the end of 2022, the forecast increased from 4.75% to 4.50% per year and by the end of 2023, it remains at 6% per year.
When Copom reduces Selic, the trend is that credit will become cheaper, encouraging production and consumption, reducing inflation control and stimulating economic activity. However, banks consider other factors when defining the interest charged to consumers, such as risk of default, profit and administrative expenses.
When Copom raises the basic interest rate, the goal is to contain heated demand, and this reflects prices because higher interest rates increase credit and stimulate savings.
- Dollar
The forecast for the dollar price remains at R$ 5.20 at the end of this year.
By the end of 2021, the expectation is that the American currency will be R$ 5.00.