In an exclusive interview for Amec, the former Central Bank director and current CEO of Mauá Capital, Luiz Fernando Figueiredo, provides perspectives for 2021. The fund manager, who is also Amec’s former president, expects the Brazilian GDP to grow by more than 3.5% and the benchmark interest rate (Selic) to rise once more in the second half of the year.
World economy forecasts predict a gradual recovery from the pandemic with increasing vaccination by mid-year. Meanwhile, countries will keep interest rates at the rock-bottom and will maintain government aid programs for individuals, families, and companies. These measures will expand liquidity and ensure tranquillity to the market throughout the year. Of course, there will be bumps along the way, but government aid programs offer a certain comfort. Meanwhile, more fiscal and monetary aid will aggravate the fiscal situation.
The Brazilian GDP
It would be no different in Brazil, but the country cannot provide another significant aid because there is no more fiscal room left for that. Still, there will be more liquidity this year. Vaccination may take longer to be largely achieved here, but this should not compromise the output growth of 3.5% to 4% in 2021. It is nothing more than a partial recovery of what we lost last year. Inflation should be around 3.5%.
It will be a year of recovery in the entire world, and it will be no different here. Our recovery will be a bit slower, considering that mass vaccination will take longer to be achieved in the country. Brazilian assets will have a better performance this year as the world improves and liquidity is abundant.
We may see some progress in the tax and administrative reforms, but one cannot bet on significant advancements. We may expect some improvement in the fiscal aspect, but the public debt will not decrease. For that to happen, GDP would need an additional growth of 3% to 3.5%. We would have to leave a primary deficit of some 2% percent of the GDP to reach a 1% or higher surplus in a year. Only then, we could stabilize the debt/GDP ratio and even reduce it in the long run.
The Selic Cycle
We currently have a low-interest rate. It is far below the neutral or structural rate, which is around 5% or higher, considering 3% inflation plus 2% in interest. However, we have a large idle capacity that is reducing considerably slowly. In this sense, I believe the Central Bank may look for a less attractive interest rate, getting closer to neutrality at the beginning of the second half of the year, or perhaps a bit earlier. It will be a gradual process to reach a nominal interest rate of 5% to 6% per year. Inflation should remain under control given the immense idle capacity and unemployment in the services sector.