Photographer: Dado Galdieri/Bloomberg
Meet the Optimists Forecasting Brazil Will Bounce Back, And FastBy
Three senior economists see above-consensus growth next year
Government forecast remains much more modest at 2% growth
No one’s popping the champagne just yet to toast the end of Brazil’s worst-ever recession, but some seasoned forecasters see cause for optimism in 2018, predicting the fastest expansion in seven years.
Three senior economists -- a top Brazil forecaster in 2016, a University of Chicago-trained Ph.D, and an academic and IMF consultant -- expect Brazil to grow on average 3.9 percent in 2018, a level not seen since 2011.
Marcelle Chauvet sits on a committee that tracks Brazil’s economic cycles at the Getulio Vargas Foundation, a prominent business school and think tank. She predicts 3.5 percent growth in 2018, a full percentage point above the consensus estimate from economists the central bank surveys. Traditional models tend to be overly optimistic heading into recession and overly pessimistic when emerging because they rely excessively on short-term cyclical data rather than longer term trends, she said.
“Most people are wrong when forecasting growth right at the end of the recession,” said Chauvet, a University of California economics professor, who has advised the International Monetary Fund and the Brazilian central bank.
With some 13 million unemployed after the worst downturn on record in 2015 and 2016, the strength of the recovery will play a major role in the 2018 presidential election. Years of recession and corruption scandal have fueled disillusionment with traditional politicians. And now, extremist candidates on the left and right will potentially vie with more market-friendly centrists for the country’s top job.
According to official data, growth resumed in the first three months of 2017 after eight quarters of contraction. For next year the median forecast from 100 economists surveyed by the central bank is 2.5 percent. The government’s outlook is even lower, at 2 percent.
By far the highest growth projected among the 34 economists surveyed by Bloomberg comes from Helcio Takeda, partner and director of economic research at Pezco Economics. He forecasts 3.8 percent growth in 2018 and expects the government’s economic agenda to advance, including approval of some type of pension reform.
Among central bank surveys in 2016 Takeda ranked first in accuracy for his long-term forecasts of the exchange rate and benchmark interest rate. The bank does not rank economists’ GDP predictions. Paradoxically corruption scandals and political noise this year have led him to reinforce his bets for 2018.
"We saw the political impact wasn’t so strong and started having the view that it isn’t just the president who’s the guarantor of the economic agenda,’’ Takeda said by phone. “Consider also that the base of comparison, 2017, will still be rather weak.’’
The most optimistic on Brazil’s growth next year is Paulo Rabello de Castro, president of BNDES state development bank, who has a doctorate in economics from the University of Chicago. His argument is that increased public lending will help fuel demand and investments. The bank plans to increase financing by 27 percent next year to nearly 100 billion reais ($30bn), he said.
“I think it will be possible to reach some 4 percent, or 4.5 percent, because statistically we’re coming from the bottom of the barrel,’’ Rabello told reporters in Rio de Janeiro. “We have a certain obligation to try, and we’re going to try."
In the three years subsequent to the 1981-1983 downturn, Brazil averaged 6.9 percent growth, according to the government’s economic research institute.
“If you look at past data, recovery tends to be much higher than potential growth. Not immediately, but a couple quarters later, almost trying to catch up for whatever happened during the recession,” Chauvet said. “It’s kind of overdue.”