High inflation, low hydroelectric reservoirs, devalued real, resistant unemployment. If the economic scenario in Brazil in this second half would be challenging for any government, President Jair Bolsonaro (no party) managed to make it even more uncertain.
Since his speeches with coup threats, on Sept. 7, fear has grown among analysts that the recovery may be weaker than previously imagined and with the risk of a new recession. The president’s retreat this Thursday (9), in a letter in which he says he had no intention of attacking Powers, brought momentary relief to the market, which moved to a position of greater suspicion on Friday. Among economists, skepticism about the promises made by Bolsonaro is also expressive.
“Until when are we going to have to believe in these setbacks? He has already passed the point and then he retreated several times”, says the professor at UnB (University of Brasília) José Luis Oreiro.
Oreiro says that there may be a slowdown in growth this year, which was already expected due to high inflation, and a new recession in 2022. And he claims that the political tension has brought a new ingredient to the already troubled economic scenario.
“Political crisis always generates an increase in the perception of uncertainty and affects the hiring of workers and investment”, he says. “All that Bolsonaro could not have done was to stir up institutional waters, but it also shows that he has no concern for Brazil nor a project for the country.”
“The signs that the Brazilian economy is feeling the impact of the institutional crisis are clear. The market’s mood is just part of the shock caused by the worsening of the political-institutional environment”, summarizes the former finance minister and current secretary of Finance and Planning of the State of São Paulo, Henrique Meirelles
He says that if the government persists in new political crises, it will be even more expensive for the country, and this is already showing in the perspectives for next year. “Growth projections for 2022 have been reduced every week. Just look at the Central Bank’s Focus Bulletin, which this week projects growth below 2% for the first time.”
Economic analysts heard by Focus this week revised the prospects for the GDP (Gross Domestic Product) of 2022 to 1.93% — a month ago, the forecast was 2.05% and 2.5% in January.
Citi Brasil adjusted its projections for next year’s GDP from 1.8% to 1.5%; Itaú had already adjusted to 1.5%; MB Associados had also reduced its projections, to 1.4%, and does not rule out new cuts.
“It is unanimous among analysts that growth should be below 2%. We are already seeing the possibility of even below 1%”, summarizes the economist at MB Associados and former Secretary of Economic Policy at the Ministry of Finance, José Roberto Mendonça of Barros.
A growing source of concern among Brazilian families is inflation. This Thursday, the IBGE (Brazilian Institute of Geography and Statistics) announced that inflation by the IPCA (Broad Consumer Price Index) reached 0.87% in August, driven by gasoline. The rate is the highest for the month since 2000, when the indicator reached 1.31%.
The index came close to double digits in the 12-month period, reaching the 9.68% mark — far from the target ceiling of 5.25%.
The rise in prices is even more cruel to lower-income families and the higher percentage of unemployment also weighs on them.
A study released by FGV Social points out that the unemployment rate of the poorest half of Brazilians rose almost ten points during the pandemic, from 26.55% to 35.98%.
The end of the year would already be weak due to inflation, interest rates, the water crisis and fiscal uncertainties linked to the Budget. The president’s latest actions threw even more uncertainty into this scenario, assesses Mendonça de Barros.
“The confluence of crises and the difficult economic situation bring a worsening in the perspectives, heading towards having a small recession at the end of this year and at the beginning of next year”, he says.
With the crisis armed by the president in recent days, truck drivers even blocked roads in several states throughout the day.
In the late afternoon of Thursday (9), Bolsonaro released a note in which he retreated after the coup threats and said he had no intention of threatening other Powers.
The financial market reacted almost instantly to the president’s statement, with the dollar ending the day down 1.84%, quoted at R$5.2270, and the Stock Exchange rising 1.72% on Thursday, to 115,360 points . But it fell again on Friday (10), accumulating losses of 2.26% in the week.
While the latest twist in the president’s speech brings relief to analysts, they say the chance of moving forward in the discussion of robust reforms has significantly diminished, as Bolsonro’s moves have come to pre-empt next year’s electoral scenario.
Analysts point out that the institutional crisis also makes the budget issue more uncertain, as the government was trying to negotiate the non-payment of all precatório (government debt recognized by the courts) next year.
Mendonça de Barros reckons that the president’s retreat will certainly ease tensions in the short term, but the vast majority know that this is temporary. “He has done this before and then radicalized again. The letter does not necessarily pave the way, for example, for the negotiation of precatoria.”
He adds that uncertainty remains in the economy and that important investor decisions will be postponed for a while. “Inflation once again went beyond what the market expected, which reinforces the perception of a slowdown.”
“A much smaller growth for next year is starting to enter the radar, close to zero. Interest rates should rise much more than expected,” says economist Guilherme Tinoco, a specialist in public accounts.
He also says that the fiscal issue should be a difficult problem for the government to solve in 2022, even if the issue of court orders is resolved.
“The ceiling will grow, but spending outside the ceiling will be lower. The intensification of political issues should be greater next year and the energy crisis is serious. The only positive vector would be the reopening of some sectors after the pandemic. “
The president’s move takes some of the pressure off, but the economic problems and challenges remain the same, says Tinoco, special adviser to the São Paulo government. “It doesn’t mean that the political environment has become more stable, it remains tense and we can see new advances and setbacks.”
In addition, uncertainties will cause risk premiums to rise further, which would affect credit, hurting loans and investments.
“Concretely, the risk premiums, both in the dollar and in the interest curve, have already risen”, says the consultant and ex-director of the Central Bank Alexandre Schwartsman.
“The first adds more fuel to the inflationary fire; the second depresses activity. Perhaps, by itself, this does not throw the country into recession, but it is already contributing to the slowdown.”
Schwartsman adds that, if there is a new turn and the crisis caused by the president gets worse, leading to capital flight, the recessive risk will increase. “It’s not the scenario I see today, but it’s a very concrete possibility.”