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LatinNews Daily - 26 October 2021

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In brief: Itaú predicts a 2022 recession in Brazil

*Itaú-Unibanco, a local private bank, has released revised forecasts and now predicts that Brazil’s economy will go into recession next year. Itaú expects Brazil’s GDP to contract by 0.5% in 2022, down from previous forecasts of 0.5% expansion. Its projection for 2021 growth remains unchanged at 5%. Itaú is the first organisation to issue a forecast for negative growth for Brazil next year. In a macro-economic research paper, the bank warns that “mounting fiscal uncertainty implies a higher country risk, higher [currency] depreciation, worse inflation predictions, and lastly, a higher level of neutral interest rates”. Itaú expects the country’s benchmark interest rate (Selic) to be raised to 11.25% by the end of this year, and adds that “higher interest rates will lead to weaker economic activity”, thus explaining the revision of its forecasts to predict a moderate economic contraction in 2022.