Uncertain Economic Outlook Challenges Strength of National Currency, According to Reuters Survey

The National Currency Is Proving Strong, Defying Growing Concerns About Economic Slowdown and Divergences Between the Government and the Central Bank. 

According to a survey conducted by Reuters, with 19 currency specialists, this national currency hovers around 5.20 per dollar in recent months. However, expectations are that there will be an appreciation of the Real in the next year to 5.10 per dollar. 

This estimate came after a weak period in the second quarter of 2022, thus easing concerns about volatility in the market during the electoral period. Despite fears about the stability of the national currency, it has been resilient and remains strong in the face of all challenges it faces. The dollar reached R$5.19 on Wednesday (1st), thus managing to maintain its appreciation.

Brazil is facing an economically unstable phase, according to warnings from analysts after a surge in activity due to inflationary spending. Edward Moya, senior market analyst at Oanda, stated that “concerns about growth will not disappear anytime soon” and there are major risks of additional monetary tightening by the Federal Reserve.

The fourth quarter of 2022 recorded a decline in the Brazilian economy, resulting from inflation and rising interest rates. Still, economic authorities are divided regarding the strategy the country will follow: while the Central Bank maintains a restrictive stance, Lula and ministers from his government oppose it.

The Mexican peso remains on solid ground after reaching its highest level in five years this week. Despite losing 6.5% compared to Wednesday, the peso is expected to trade at 19.40 per dollar next year, staying close to the healthy level of 20.00 per dollar. The news was received with joy by Mexicans, who saw the peso cross like a ray of hope the mark of 18.00 per dollar.

The Brazilian Economy Grew 2.9% in 2022 But Fell 0.2% in the 4th Quarter. 

Brazil’s GDP (Gross Domestic Product) closed the year 2022 with a cumulative increase of 2.9%, according to data released by IBGE (Brazilian Institute of Geography and Statistics). Despite the result being slightly below market estimates, the GDP turned negative in the last quarter of the year, with a decline of 0.2%.

Despite the acceleration in the first three quarters of 2022, the weaker performance in the last quarter is attributed to rising interest rates. According to the coordinator of National Accounts at IBGE, Rebeca Palis, “it was already expected that the economy, with these high interest rates, would slow down.” 

The Brazilian economy recorded a cumulative growth of 5% in 2021 and 3.3% in 2020. The annual average during the Bolsonaro administration was 1.45%, while the governments of FHC (1995-2002), Lula (2003-2010), and Dilma-Temer (2011-2018) recorded 2.44%, 4.09%, and 0.71%, respectively. 

The GDP totaled R$ 9.9 trillion in 2022 and the per capita GDP reached R$ 46,154. The economic stimulus measures adopted by the Bolsonaro government – such as the expansion of Auxílio Brasil and tax cuts on fuels – contributed to the economic growth. However, expectations for 2023 are for weaker performance due to the persistence of high interest rates.