RIO – The “normalization” of activities, as vaccination against Covid-19, will ensure economic growth this year, but the problems, aggravated by the heightened political crisis, will remain in 2022, say researchers at the Brazilian Institute of Economics in Getulio Vargas Foundation (Ibre/FGV).
The institute projects 1.5% growth in the Gross Domestic Product (GDP) 2022, down from 4.9% this year, but the risk is that the economy’s performance will be even worse. For Armando Castelar, coordinator of the area of Applied Economics at Ibre/FGV, the worsening of the political crisis after the demonstrations on September 7th anticipated the electoral debate.
According to the economist Silvia Matos, coordinator of the Macro Ibre Bulletin, the “normalization” of activities due to vaccination will make the economy present, in the third quarter, a performance similar to that of the second quarter, with advances in the services sector and setbacks in industry and agriculture. The reopening guarantees an “automatic growth” in 2021 because the simple “normalization” will already lead the pace of activity to be above what is seen in 2020, because of the pandemic.
Even so, there are short-term risks. The water crisis, which signals for problems in the generation of electricity, brings an “even greater challenge” for the industry, already affected by the scarcity and increase in the cost of components, due to the pandemic, according to Silvia Matos. For now, the stress in power generation creates another “cost challenge” for the industry, but the picture could get worse if there is rationing.
“(The lack of electricity) It is not the base scenario, but the risk exists”, said the researcher, during the III Seminar on Conjunctural Analysis of 2021, promoted via internet transmission by Ibre/FGV in partnership with the state.
Although the impacts of the water crisis are worse than expected, they should be felt more in 2022. This scenario, combined with the political crisis, threatens even the 1.5% growth projected for next year. Given the political turmoil, “the current scenario can lead to growth below 1.0%”, according to Silvia Matos.
“I already had a very negative view in relation to an election year (2022), but, unfortunately, I had not put such a dramatic scenario into account,” said the economist, referring to the escalation of the crisis after speeches by President Jair Bolsonaro in protests on the 7th of September.
For Castelar, who also participated in the seminar, given the demonstrations on September 7 and President Jair Bolsonaro’s speeches at the events, the advance of vaccination and the control of the pandemic stopped dictating the pace of the economic scenario. The debate on the 2022 general elections was definitely brought forward. Thus, the economic scenario is now dictated by the framework from 2023 onwards, that is, by the program of the next government.
It’s a picture similar to the political crisis caused by the revelation of recordings of a conversation between former president Michel Temer and the owners of meat packing company JBS, in 2017. The revelation, which almost led Temer to resign and made the then president face the vote, in the National Congress, from a request for authorization to open an investigation, it took the focus from economic expectations of the progress of reforms and threw it into the 2018 elections.
Castelar sees problems in anticipating the electoral debate. One is that it is too early to start this debate. “It’s a long time before (the election). The voter is not thinking about an election, so it is very difficult to predict (the result)”, said the researcher.
In addition, the current design of the electoral debate brings “very great uncertainty” about the direction of the economy from 2023 onwards. Although the eventual viability of a “third way candidate that encourages the market” may improve prospects, the two main candidates placed for 2022, President Bolsonaro, who may seek re-election, and former President Luiz Inácio Lula da Silva, “they do not have a strong commitment to fiscal discipline”.
“The main actor is now the current president (Bolsonaro), but the fact that the poll leader is a candidate (Lula) against the fiscal anchor, against the ceiling (public spending, which limits federal budget expenditures to the value of the the previous year, corrected only for inflation), also counts,” said Castelar.
To make matters worse, the researcher believes that, given the demonstrations of support for Bolsonaro in the acts of September 7th, the political environment could remain “tumultuous” even after the 2022 elections. In other words, the next federal government could also face political crises .