Brazil’s trumpeted 2.40% Gross Domestic Product (GDP) growth forecast for 2020 is economically and mathematically unreasonable. A 1.20% is!
Every beginning of year comes about packed with great expectations. I suppose it’s all down to a sort of “renewal sentiment” with which mostly Westerners and the superstitious alike are used to start their new years. In Brazil that renewal sentiment has had government officials at the Ministério da Economia(Ministry of the Economy) announce, in early January, a Gross Domestic Product (GDP) growth expectation for 2020 of 2.40% in comparison to 2019’s somewhere at 0,89% (see picture above). Other notorious bodies like the International Monetary Fund (IMF), the World Bank and Fitch (a rating agency) all expect growth rates of at least 2% for Brazil in 2020: 2.20%, 2% and 2.34%, respectively. Is that reasonable? Let us talk basic economics … and some econometrics too!
In early September and December 2019 I jotted down a few words about GDP growth forecasts/expectations for the upcoming year (2020). So this is the third occasion I spare some time to reflect upon that subject (I also intend to revise this text at least quarterly so that I can track official GPD forecasts and stack them up against my own econometric forecast … and this for a purely educational purpose). Later on you’ll see that my forecast for 2020 is way more dismal than the official ones. As much as I would like my forecast to be accurate (that is, Brazil may grow way less than what is currently expected), I root for the official ones … after all, it’s the economy!
While on those September and December articles I restricted my analysis to a more qualitative approach, that is — a discussion of GDP forecasts for 2020 through a theoretical approach of the Real Business Cycle Theory (RBCT), the Production Possibilities Curve (PPC) and the overall importance of investments for the economy, in this third article I would like to expand on my analysis by introducing a more quantitative/mathematical approach, that is — my own 2020 GDP forecast/expectation through an econometric model I developed.
The meat and potatoes of my argument is this:
(i) considering that the Brazilian GDP has grown at a yearly average of 1.02% since 2017 (a year that brought in the first…