Despite Bolsonaro, the feeling of well-being will improve until the election, says José Márcio Camargo – 09/09/2021 – Mercado

Economist José Márcio Camargo, professor at PUC-Rio, says he has “a lot of difficulty” in understanding President Jair Bolsonaro’s (non-party) political confrontation strategy at this time of economic recovery.

“We have to pay attention to what’s behind what you’ve been doing. I don’t think he’s wasting his time,” he says, noting that Bolsonaro won the election three years ago in a “very impressive way.”

Also chief economist at Genial Investimentos, Camargo says that the Brazilian economy will be at another level at the end of this year and in the 2022 election period, with the return of the service sector, which represents 70% of GDP.

“It is true that unemployment and inflation are high. But that is already there,” he says. And this is not just in the economy, it is in society, with the feeling of well being completely changing.”

For Camargo, whoever manages to capitalize on this feeling will be in the second round next year.

The situation we had until a few weeks ago, if not comfortable, was a little tidier to have a better second semester. But what came is the deterioration of market indices and expectations caused by the president himself. What to expect from the economy now?
The degree of uncertainty has greatly increased, and no one knows exactly how far the president is willing to go and what his next steps will be. We still don’t know how Congress and the Judiciary will react to these demonstrations.

From a certain point of view, the presidents of the Houses, both Arthur Lira [Câmara] as Rodrigo Pacheco [Senado] they reacted more or less calmly, with very soothing statements. Lira even shared the responsibilities [da crise] between the STF and the president. In the Legislative, the situation should remain similar, with all the problems that already existed.

The problem is how the judiciary will react to the president’s speech. The main issue to be resolved is that of court orders [o Supremo estava procurando saída para o governo não ter de pagar R$ 89,9 bilhões em dívidas judiciais neste ano]. But the big problem is that we are unable to anticipate the president’s next steps.

Many people in the market are directly attributing to the president the deterioration of indicators such as the dollar, which fuels inflation and future interest rates. And that we could have a better situation if the president didn’t pull the string all the time.
I have no doubt that this aggressive behavior by the president affects asset prices. This greatly increases the uncertainty, we have more exchange rate devaluation than we would have, the stock market does not gain traction and interest rates increase. In the dark it is very difficult to walk.

Maintaining this scenario, we have two movements going forward. On the one hand, volatile financial assets, high inflation, some problems still in the industrial chains, the prospect of more expensive interest and credit and paused investments. On the other, the large service sector is returning. How do you see the result of these two forces?
We are relatively optimistic about the behavior of the economy in the second half of the year. Uncertainty is always bad. Investment and consumption are more contained. But the point is that the engine of growth in the second half will be the services sector.

If the pandemic continues on its trajectory for the past three months, that will be very positive. The “if” there is very important. But if that’s true, our scenario is one of euphoria at the end of the year, with people dying to get out of the house. This is already showing up in the data, but it will increase if the trajectory continues as it is there.

We are going to reach the end of the year with a feeling of well-being that is completely different from what we have today. So we are optimistic.

Employment in the service sector is highly concentrated in the informal sector, which suffered the most from the pandemic. We have 5 million informal workers who were left without work and who are going to resume their occupation now, with the return of services. This is very positive for the poorest, neediest and those who have suffered most. This is already happening. It’s the pub on the corner, the restaurant in the neighborhood, the servants and so on.

It is true that unemployment and inflation are high. But that already is. Again, the “if” is critical. If we continue on the same trajectory as the pandemic, we will have a very different end of the year than the first half of this year. And that’s not just in the economy, it’s in society, with the feeling of well-being completely changing. What was the end of the Spanish flu in 1919 will happen more or less, with monumental euphoria.

What are the expectations about the fiscal situation and GDP this year?
Our assessment is that the fiscal situation is under control. We have an important reduction in the primary deficit, and Brazil is the only country that is making fiscal consolidation in the middle of the pandemic. Let’s reduce the primary deficit [resultado negativo nas contas do governo, sem considerar os juros da dívida pública] from almost 9% of GDP to just over 1% this year and to something close to 0.6% next year. This is an amazing and unusual thing. We might miss it along the way. But I do not think so. Our assessment is that the government will respect the spending ceiling [que limita o aumento da despesa à inflação de 12 meses]. This is a very important point.

Until yesterday, we were working with a growth of 5.8% this year, and this has to do exactly with the issue of services. It is possible that this will be reduced a little because it also has to do with investments. We were very optimistic about the return of concessions and other productive investments, but this could take a step back now with the increase in uncertainties. But service is 70% of the Brazilian economy, and it will make a big difference. The comeback will be very strong.

From a political point of view, can you understand the president’s strategy? It seems that, if he had a slightly more conciliatory or even “silent” position, he could be helped a lot more, especially by the services sector. Making noise, doesn’t he end up playing against your re-election?
​For me, it’s anybody’s guess. I find it very difficult to follow the president’s political movements. He must have something on his mind. He won an election three years ago in a very impressive way. He set up a strategy and won. It’s not little. We have to pay attention to what’s behind what you’ve been doing. I don’t think he’s wasting his time.

But I can’t understand it right. If you had less uncertainty, it would be easier to make yourself viable as an incumbent. With this increase in uncertainty, there will be a reduction in investments, less employment, more inflation.

But the question I have been asking myself is who is going to capitalize on this improvement in the environment that will be generated by the end of the pandemic. That’s the big unanswered question.

It could be the president, who can say that he bought vaccine for everyone and the pandemic is over. Can be the [João] Doria, who can say that she had the vaccine. Can be the [Luiz Henrique] Mandetta [ex-ministro da Saúde], which went on television every day. Who will capitalize on this comeback if the pandemic ends?

This could be final for the election result, and whoever manages to do that will be in the second round next year.

Brazil is a poor country and it is the poor who are suffering most from inflation. The IPCA for August has just come out (0.87% and 9.68% in the accumulated in 12 months), the highest since 2000. There will be improvement in services, but will this be enough for this portion, the majority, between now and the election?
This was the group that suffered most from the pandemic. The poorest, most informal and those who have to work in person were the big losers. Could not do remote work. They lost a lot and it wasn’t just in Brazil. We will have an increase in inequality, without a doubt.

But that’s why this return to informal employment is so important. We are not going to be able to formalize 30 million people overnight. But there will be income generation from the return of services. Many people complain about informality. But listen: we are in an emergency. We have millions of unemployed workers and their return to the labor market is extremely positive.

At the end of this year and next year we will be better than this year. Is it enough to compensate? I don’t think so, but that’s what we’re going to have. What is possible is this.


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José Márcio Camargo, 73

Doctor in economics from MIT (Massachusetts Institute of Technology) and graduated in economics from the Federal University of Minas Gerais, he is a professor at the Department of Economics at PUC-Rio and chief economist at Genial Investimentos. He was one of the formulators of Bolsa Família.