The SPE (Secretariat for Economic Policy) of the Ministry of Finance released new calculations this week to estimate potential GDP (Bruno Domestic Product), that is, the maximum level of output in the country’s economy that does not put pressure on inflation.
The conclusion is that Brazilian capacity is slightly larger than the secretariat itself expected: for example, for 2024, calculations indicate that the country could grow by up to 2.6% without inflation accelerating. Using the old methodology, the percentage would be 2.4%.
GDP closed higher by 3.4%. In other words, the economy was overheating – in economists’ parlance, the difference between real GDP and potential is the output gap.
Unlike real GDP, potential GDP is unobservable and is an estimate of how much the economy will grow without accelerating inflation. With this number, experts estimate how hot the economy is.
SPE’s innovation was to include the amount of land that can be used for agriculture and the power generation capacity in the calculation. In the traditional form of accounting, only labor and capital paths are used.
For Raquel Nadal, SPE’s undersecretary for macroeconomics, this calculation is a more accurate measure of productive capacity because it can also capture these wealth-creating factors.
According to her, the implication for monetary policy is that this gives more precision to the gap, which is one of the pieces of information that Coboom uses to set the interest rate.
Several institutions have their own accounts: the Central Bank, the Independent Financial Institution, an entity linked to the Senate, and the FGV (Fundação Getulio Vargas) also draw up their estimates.
The potential GDP of these private entities is greater than that of these entities. In the text presenting the new calculation, the secretariat says this helps explain why inflation in basic services is lower than expected given the current level of unemployment, near the historical minimum.
For government expenditure and tax policy, the data was used to calculate the structural fiscal score, i.e. what is the government’s raw score taking into account fluctuations in GDP.
The economy is still overheating, but is starting to slow, says Rafael Paciotti, an economic analyst at IFI. “The central bank account also shows that the economy is above its potential, which is why there is this pressure on inflation,” he says.
The secretariat stated that it intends to create a new account that includes the production of petroleum derivatives and biofuels and will publish forecasts for the potential gross domestic product.