Bradesco raises GDP forecast for 2026 and sees higher inflation and Selic

Bradesco increased its estimates for the growth of the Brazilian economy in 2026, but reduced its projection for the expansion of activity in 2027, and started to see both inflation and Selic higher in both years, although it still expects more cuts in the basic rate until December.

Bradesco raised its forecast for GDP (Gross Domestic Product) growth in 2026 from 1.8% to 2%, stating that at the moment there are "strong stimuli that oppose monetary policy", and that credit stimulus measures adopted by the government should moderate the slowdown in activity, "but interest rates at even more restrictive levels will continue to take GDP expansion below potential".

For this reason, the projection for economic growth in 2027 fell from 2% to 1.5%.

"Our hypothesis continues to be that the fiscal impulse will be negative, and the expanded credit in 2026 becomes a greater commitment to income or lower cash generation in the following year, putting pressure on consumption and investments, at the margin", said Bradesco in a report.

"The labor market should show some accommodation, with the unemployment rate rising from 5.9% in 2026 to 6.8% in 2027. It will still be a low unemployment rate by Brazilian historical standards, but it will tend to contribute to the widening of the output gap over the next few quarters", he pointed out.

Inflation should, however, be higher than previously expected in both 2026 and 2027. The forecast for the rise in the IPCA (Broad Consumer Price Index) this year rose from 5% to 5.3%, while next year's rose from 3.7% to 4.1%.

The change, according to Bradesco, reflects "the shocks coming from the war, food prices, including those coming from El Niño, and, to some extent, the resilience of the services sector."

"Without the impetus from the exchange rate and the fall in oil prices, however, the shock in the industrial goods chain is dissipating, with relief expected for the fourth quarter. Services inflation remains resilient, with the cores still under pressure, but without further deterioration", he assessed.

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With higher inflation, Bradesco also revised upwards its estimates for the Selic rate - from 12.75% to 13.75% at the end of 2026 and from 10.25% to 11% in 2027. The rate is currently at 14.25%.

The bank highlighted that the fact that the Copom (Monetary Policy Committee) had signaled in the minutes of the most recent meeting that the Selic calibration cycle may include pauses along the way also influenced the review.

"The high real interest rate, the expectation of a certain exchange rate stability and negative fiscal and credit impulses next year lead us to believe in a scenario of expected inflation consistent with convergence in the future relevant horizons, leaving room for cuts", he added.

"It is worth highlighting that, at 11%, the real interest rate at the end of next year, at around 7.5%, will still be above the level that we and the Central Bank estimate as neutral for the economy in the absence of current stimuli and shocks", he concluded.

High interest rates discourage consumption and can slow down the economy; understand

Source: CNN