“Perfect Storm” Brings Down Economic Growth Scenario for 2022


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Inflation and rising interest rates, unemployment, an expensive dollar, water crisis, institutional conflicts, run-up in Congressional bills and new fiscal risks. The “perfect storm” of recent days has forced economists and investors to revise their estimates for next year’s economy growth to the same low level common in pre-pandemic years, below 2%.

While the population feels the effects of the deteriorating economy in their pockets and complains about the high prices of cooking gas, gasoline, electricity and food, the market seems to be falling into reality.

O state points out the main problems that soured the mood and why Brazil is still at risk of having another “chicken flight” style growth, after the faster resumption of the economic crisis caused by the covid-19 pandemic, without taking advantage of the full potential of the cycle of commodities (commodities such as food and iron ore) that boosted exports.

The acceleration of inflation is forcing the Central Bank to be tougher in raising interest rates and cooling the economy, compromising GDP growth in 2022. The international scenario was also less favorable. On the domestic front, the political crisis between the powers is intensifying, raising the risk perception of electoral populism of President Jair Bolsonaro to regain his popularity and reach 2022 with a chance of being reelected.

“We may have a better time in the short term, a slightly better year, but the prospect is for a mediocre country”, says Insper president Marcos Lisboa, who says he is frightened by the progress of the projects in Congress: the reform of the Income Tax and the Proposal for a Constitutional Amendment (PEC) of payment in installments of the precatório, judicial debts that the Union is obliged by the Justice to pay off. The approval of these bills is key for Bolsonaro because, without them, it will be more difficult for the government to announce a high benefit from the new Bolsa Família to boost the electoral campaign, without changing the fiscal rules. “The government makes big announcements and, when you go to read the projects, they disappoint and, in many cases, scare”, he says.

The precatório PEC reopened the discussion about breaking the spending ceiling (a rule that controls the rise in expenses) and brought back the ghost of creative accounting in public accounts. For the Senate consultant, Leonardo Ribeiro, PEC promotes a financial triangulation to make room in the spending ceiling. “This triangle resembles the fiscal pedaling designed by the former Treasury secretary, Arno Augustin, of the Dilma government,” he says, who advocates removing the precatory from the ceiling with additional measures to control these expenses.

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