WEEKLY REPORT We revise our Selic forecast to 11% in 2027, reflecting a more significant fiscal adjustment next year – 10/09
✅ We revised down our growth forecasts for 2026 and 2027, reflecting the loss of momentum in cyclical sectors and the prospect of a negative fiscal impulse next year. In the second quarter, economic activity grew by 1.9% over 12 months, while domestic absorption increased by just 1.0%. Cyclical sectors also underperformed non-cyclical sectors, growing by 1.3% and 2.7%, respectively. Against this backdrop, we lowered our GDP growth forecast from 1.9% to 1.8% in 2026 and from 1.6% to 1.3% in 2027.
✅ The prospect of fiscal adjustment has strengthened despite electoral uncertainty, supporting our exchange-rate forecast of BRL 4.90 per USD in both 2026 and 2027. We believe the likelihood of a more significant adjustment has increased with the possibility of a change in government, but the prospect of expenditure-side measures has also gained traction if the incumbent remains in power. Expectations of a credible adjustment, with real expenditure growth restraint and a review of less productive spending, could support capital inflows, BRL appreciation and improved financial conditions.
✅ On monetary policy, we now forecast the Selic rate at 11.0% by the end of 2027, maintaining our 2026 forecast at 13.25%. The slowdown in economic activity and the effects of monetary policy support the continuation of the calibration cycle. A consistent fiscal adjustment early in 2027, together with BRL appreciation, could also create room to accelerate monetary easing from the second meeting of the year. This trajectory assumes that longer-term inflation expectations, currently close to 3.5%, re-anchor toward the 3% target.
✅ For inflation, we maintained our forecast at 5.1% for 2026 and project 3.9% for 2027. Despite upside risks associated with El Niño and geopolitical conflict, our revised exchange-rate outlook should have a significant disinflationary impact on food and industrial goods next year. Services disinflation should proceed gradually as the effects of still-restrictive monetary policy work their way through the economy. If the projected decline in interest rates materializes in 2027, easier financial conditions could stimulate productive investment and support a more sustained recovery in growth, particularly from 2028 onward.
