The market improved growth projections for the Brazilian economy, a fact that is usually closely followed in Argentina as it is its main trading partner. Besides, Analysts do not expect the Central Bank of Brazil (BCB) to define a cut in interest rates this WednesdayDespite the President’s orders Lula Da Silva.
According to the Focus survey carried out by the BCB, The analysts consulted forecast that Brazil’s GDP will grow 2.14% this year, which represents an improvement compared to the 1.84% of the previous week. So the estimates increased for the sixth week in a row: A month ago, the projection for an improvement in the economy was 1.2%.
Meanwhile, private economists also expect interest rate cuts to start in August, as part of further monetary easing, while inflation expectations also fall. According to the median estimate of the survey, the Central Bank is expected to cut its benchmark interest rate by 25 basis points in August.
A few days ago, the president Lula da Silva once again asked the monetary authority to reduce rates from their current maximum of six years. It is that high rates make credit more expensive and take away the stimulus for consumption and investment, which could cause a cooling of the economy.
In this sense, the president of the Central Bank, Roberto Campos Netoindicated last week that improving market conditions were paving the way for a change in monetary policy. This Wednesday, the Monetary Policy Committee (Copom) of the entity will publish its decision on the Selic rate at the end of its fourth meeting of the year.
In August it will be one year since the monetary authority set the interest rate at 13.75%, the highest in the world in real terms (discounting inflation), according to investment manager Infinity Asset. Economists surveyed by the institution now expect rates to end 2023 at 12.25%, downgrading their estimates from 12.50%, before falling to 9.50% by the end of 2024, compared to 10 % previously planned.
How it affects Argentina
A greater economic expansion of its main trading partner can be beneficial for Argentina. “Last year, 33% of our industrial exports went to Brazil, close to 15% of the total. Therefore, weaker growth threatens a more robust demand for the exports that we require”explain analysts.
In that scenario, The bilateral deficit grew during May and reached US$763 million, a figure similar to the previous month (US$776 million). “Compared to May 2022, the rise in the bilateral commercial red was 21.7%. Undoubtedly, the jump in soybean imports for grinding (+531.2% yoy), which reached a nominal record of no less than US$500 million in a context of internal shortages of the oilseed as a result of the drought, had a very negative impact on the trade deficit for May that was 129.1% higher than the average for the first quarter (USD 333 million)”, explained the consultancy Abeceb.
In the first five months of the year The bilateral trade balance with Brazil has accumulated a deficit of US$2.5 billion, that is, 2.5 times higher than that of the same period of 2022. Only until May, the deficit already exceeds all the bilateral red of all of 2022 (USD 2,245 million)”, they detailed.
In this context, the possibility of Argentina entering the Brics as a full member could be key. It is that the eventual incorporation into the bloc of nations and emerging powers that make up Brazil, Russia, India, China and South Africa, can mean a way out of the difficulties that external restrictions represent for the macroeconomic health of the country and the sustainability of its economic growth. as well as an interesting source of financing for large infrastructure projects.
Source: Ambito
