By Paulo Nogueira Batista Jr.
I venture back into the minefield of economic and political predictions. The difficulties are notorious. There is a saying, famous on Wall Street: If you have to forecast, do it often (If you have to make predictions, make them often).
In politics, predictions are even more reckless. Why do them then? It’s not hard to understand. Today’s decisions critically depend on the vision of the future, however cloudy, however uncertain. Everyone tries, with greater or lesser criteria and success.
Let’s go then. It is impressive, reader, how the Brazilian prospective picture has changed in just two or three months. Both for the economy and for politics, with the modification of political perspectives reflecting in part the deterioration of the economic horizon for what is left of 2021 and for 2022. The decay of the federal government has become more evident.
The economy continues to recover to some extent, it’s true. The level of activity has been increasing, with positive effects on tax collection. A GDP growth of the order of 5% seems feasible in 2021, although it should be noted that the interannual statistic includes a carry-over expressive, as I’ve commented in previous articles.
At the margin, that is, Q4 2021 versus Q4 2020, the growth rate will be considerably lower. The increase in GDP throughout the year will be negligible, close to zero in per capita terms.
The pace of economic expansion underway is not enough to significantly improve the labor market.
The total number of unemployed was 14.4 million in the second quarter, according to the IBGE. The unemployment rate (open unemployment) was 14.1%, showing some decrease compared to the record of the first quarter.
The level of employment has grown, but its effect on the unemployment rate is partially neutralized by the increase in the participation rate (defined as the ratio between the active population – employed or unemployed in search of work – and the population of working age) .
The increase in the participation rate is due, in turn, to the cooling of the pandemic and, also, to the economic recovery, which increases the chances that the job search can be successful.
On the other hand, many of those who have jobs are in the informal sector (40.6%) or underemployed. Underemployment – unemployment due to insufficient hours worked – reached a record of 7.5 million people.
These are people who would like to work more hours than they currently manage. The unemployed due to discouragement, that is, those who would be interested in working but abandoned the search for not believing in the possibility of getting a job, reached 5.6 million.
Considering the three forms of unemployment – open, due to insufficient hours worked and discouragement – the total of unemployed or underemployed reaches no less than 27.5 million in the second quarter. A tragedy, in short.
What has been happening in terms of economic activity and the labor market in recent months is more or less as expected. There were, however, very negative surprises in other areas. I refer to higher and persistent inflation and the water and energy crisis. The first is caused, in part, by increases in electricity prices resulting from the drought and the depletion of reservoirs.
It is true that inflation and the energy issue were already present as concerns a few months ago. But the government and private agents were taken by surprise by the worsening of these problems. It was clear that there is a risk of energy rationing, even though the government insists on denying it.
The Central Bank runs after the loss and seeks to regain control over inflation, intensifying monetary tightening and raising the basic interest rate more quickly. This should cool the inflation rate with some lag, but at the price of bringing the GDP growth rate down to below 2% in 2021.
Throughout this year, inflation has been eroding real wages, adding to high unemployment, to reduce the wage bill and hinder the resumption of consumption.
To complete the picture of difficulties, the beginning of the second half brought signs of deterioration in the international economic context, which had been one of the factors driving the recovery of the Brazilian economy.
The spread of the delta variant in various parts of the world has shown that the pandemic is far from over, prompting downward revisions to economic growth projections for China, the United States and other major countries.
In addition to pointing to a less favorable environment for the Brazilian economy, news of the pandemic abroad also fueled the perception that Brazil still has many risks ahead in facing the public health crisis.
1 – Centrão splits and wing already admits leaving Bolsonaro in 2022
2 – Bolsonaro believes he goes to the 2nd round with 30% and fears losing to Lula
The expectation that the economy could be an important asset for Bolsonaro in his quest for re-election disappeared
For all these reasons, the expectation that the economy could be an important asset for Bolsonaro in his quest for reelection disappeared. What seemed plausible and even probable for some – the government’s recovery thanks to the economic factor and the advance of vaccination – was much further removed. Whoever counted on it has already soaked their beards.
All the more so since the government has shown repeated demonstrations of ineptitude and weakness in the conduct of economic policy and its agenda in Congress. The turmoil surrounding the reform of the Income Tax, the issue of precatories and the expansion of the Bolsa Família, for example, consolidated the perception that the government has lost its way.
Increasingly isolated, Bolsonaro may not even reach the end of his term. The third way has realized for some time that it is only viable. If he manages to survive, the most likely is the President of the Republic who arrives at the election worn out and demoralized. That’s what can be expected based on the information we have.
In any case, it is worth remembering Keynes’ warning: “The expected never happens; it is the unexpected always!” (The expected never happens; it is the unexpected always!”).