The Economic Policy Secretariat (SPE) of the Ministry of Economy reassessed its expectations for Brazilian economic growth in 2020. The updated projection is for 2.1% growth in Gross Domestic Product (GDP), while the previous projection was 2.4%.
Waldery Rodrigues, the special secretary of Finance at the Ministry of Economy, said that the forecast for the Gross Domestic Product would remain above 2%.
He also said that two other factors would factor into this equation: the downward revision of economic growth projections and the drop in international oil prices. And that this will result in the government taking contingency action (read: freezing) of part of the budget.
With the economy still growing, albeit below expectations, the government is collecting less. This means it needs to limit discretionary (i.e., non-mandatory) spending to meet the fiscal primary deficit target of R$124.1 billion for 2020.
Oil
"There is uncertainty about the impact that the drop in oil prices and the slowdown in global growth may have on the Brazilian economy. It is important to highlight that the growth scenario for this year has become more challenging. We are closely monitoring the developments of Covid-19 and the recent drop in oil prices. And we reaffirm that the best response to the new scenario is to persevere with fiscal and structural reforms," the bulletin states.
Another factor likely to influence the drop in revenue is the shock to international oil prices. The budget law was formulated based on an expected average price of US$$ 58.96 per barrel of Brent crude, but the commodity closed yesterday's trading session at US$$ 37.22.
It is worth remembering that the government must also remove from the account the R$ 16.2 billion expected from the privatization of Eletrobras, whose project did not advance in Congress.
It also revised its projection for the National Consumer Price Index (INPC) in 2020, from 3.73% to 3.28%. This indicator serves as a benchmark for adjusting the minimum wage, which in turn influences the value of two-thirds of the benefits paid by the INSS (National Institute of Social Security), in addition to spending on salary bonuses and social assistance.
The SPE's projections also point to a 3.12% increase in the Broad National Consumer Price Index (IPCA), the official inflation indicator, compared to an expected 3.62% increase.
See more on the impact of the current situation on the local economy.