Three months ago, when the IBGE released the GDP for the first quarter, some colleagues said that the Brazilian economy would grow by almost 6% this year. At the time, I wrote that it was difficult to know if the recovery would be “V” for vigorous or vulnerable, as there were so many clouds on the horizon. Second quarter GDP indicated that our recovery is in a “V” for vulnerable.
The economy was stagnant in the second quarter of this year, when we consider the seasonally adjusted number, compared to the previous quarter. If we consider the number compared to the same quarter of 2020, there was a growth of 12.4%, practically offsetting the sudden stop caused by Covid in April, May and June 2020, when the economy fell 10.9% on the same basis as comparison.
As I said in this space, I prefer to use growth compared to the same period last year as a reference, as a shock such as Covid greatly affects the seasonal adjustment of statistics. Whenever a new issue is published, the series is adjusted and more recent observations can change significantly.
Focusing on the economic sense of the GDP result, the good news is that the economy has returned to its pre-Covid level. The GDP of the second quarter of 2021 was 0.2% higher than that verified in the same period of 2019, before the pandemic. It wasn’t a spectacular performance like in the US and China, but it wasn’t disappointing like in other countries, especially in Europe.
The new FGV Ibre projections, which have a good track record, indicate that GDP will grow 4.9% in 2021. It sounds good, but, translating from the economy, this number means that the economy will go sideways until the end of the year . After the recovery in the first quarter, GDP tends to remain stable for the remainder of 2021, but when we compare the 2021 average with the 2020 average, there will be growth of 4.9%.
The bad news of the GDP result is that, after the “sudden stop” of the pandemic, our economy seems to be returning to the pre-Covid growth rate of 1.5% per year, which, in turn, is insufficient to reduce unemployment, reduce inequality and rebalance public accounts quickly.
If the economy really grows 1.5% in 2022, we will return to the semi-stagnation of the Temer government and the first year of Bolsonaro, which I call the “Temeraro” government, because the economic policy was the same in the 2017-19 period: a squeeze in the budget of people, expansion in the budget of the few and destruction of the State’s planning and performance capacity for economic and social development.
Theoretically it is still possible to change, as the Covid shock showed how the government can mitigate the crisis and promote a faster recovery of the economy. Several countries around the world have learned the lesson and are adopting post-pandemic economic and social reconstruction policies, replacing anti-crisis measures with structural investment initiatives in infrastructure, environment and social inclusion, to be paid with growth and gradual and progressive increase in taxation .
Here, we are still stuck in the pre-Covid logic of betting on the “expansionist fiscal contraction”, that possible but unlikely hypothesis that fiscal tightening accelerates growth. Today I think that even Bolsonaro has lost faith in his economic team’s forecasts, but since his government has been reluctant to adapt our fiscal rules to the post-pandemic reality, we will likely have a disorganized fiscal policy in 2022.
We will have a chaotic and physiological Keynesianism of reelection, which tends to generate more uncertainty than growth.
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