The global economy may not have as bad a year as was expected a few months ago.
China’s reopening with the end of the zero-COVID policy, the milder winter in Europe, and signs that the most acute phase of inflation in the main countries may now be behind us have helped improve forecasts for global Gross Domestic Product (GDP).
Despite better projections, economists believe the outlook is not optimistic.
In Brazil’s case, for example, more positive global figures help, but not enough to change the weak growth scenario expected for 2023.
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In its latest revision, the International Monetary Fund (IMF) raised its estimate for global GDP this year from 2.7% to 2.9%, but it is still below the average seen since 2000 (3.8%).
“Global prospects are better than they were a few months ago, but I would say the overall picture is still a challenging scenario,” says Eduardo Jarra, chief economist at Santander Asset Management.
In China, the reopening of the economy was faster than expected with the end of the zero-COVID policy.
This contributed to the IMF raising its forecast for the country’s economic growth from 4.4% to 5.2%.
Less Cold
In Europe, the milder-than-expected winter also brought relief to the economic outlook, which has been heavily affected by the conflict between Ukraine and Russia.
There had been concern that extreme cold could increase demand for gas and lead the region to face shortages of the product.
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“The milder winter in Europe greatly reduced the need to use gas for heating,” says Alexandre Bassoli, chief economist at Apex Capital. “The fear was that, if winter were harsh, rationing would have to be implemented.”
Risks
At the turn of the year, many economists saw the risk that Europe could face a deep recession, an expectation that now seems more distant.
Goldman Sachs (NYSE: GS ) had projected GDP of -0.1% for the region. Today, it is estimated at 0.8%.
In the U.S. economy, the scenario of exaggerated pessimism over inflation is starting to fade.
In December, over the previous 12 months, the Personal Consumption Expenditures (PCE) Price Index rose 5%, compared with 5.5% in November.
The PCE is closely monitored by the Federal Reserve (Fed, the U.S. central bank).
At its latest meeting, the Fed slowed the pace of interest rate increases to 0.25 percentage points, reaching a range between 4.50% and 4.75% per year.
However, Goldman Sachs’ director of macroeconomic research for Latin America, Alberto Ramos, believes that the low unemployment rate could still put pressure on inflation in the coming months.
On the other hand, there are factors already easing price increases, such as the normalization of global supply chains.
Effect on Brazil should be positive, but limited
Stronger-than-expected global economic growth should have a positive, though limited, effect on Brazil.
With China advancing more than initially projected, the trend is for commodity prices to rise, which favors Brazil.
“China’s recovery is excellent news, because the country is the main destination for Brazilian exports,” says Bassoli, of Apex Capital.
Analysts expect Brazil’s Gross Domestic Product (GDP) to increase by 0.8% this year.
The expectation of a hotter global scenario, however, has not led banks and consultancies to make major changes to their outlooks.
Alberto Ramos, of Goldman Sachs, points out that China should mainly move the oil and copper markets.
Last year, the bank projected growth of 4.5% for the eastern country. Now, the estimate is for an increase of 5.5%.
Ramos believes, however, that Chinese growth will not have here the same impact it had in the past.
That is because, before, the country’s growth was based on infrastructure investment, which required, for example, more iron ore , a commodity widely produced in Brazil. Now, China is boosting the economy through domestic consumption.
“This type of Chinese growth helps Brazil, but it does not benefit it as much as the infrastructure-based model,” says Ramos.
Reference source: investing.com
