Vaccine helps GDP and employment, but energy, inflation and interest hinder

The advance of vaccination is encouraging the safe reopening of activities in the economy, opening space for greater circulation of consumers and reducing restrictions on the operation of companies, especially in trade and services. They are more confident to re-hire workers, say economists, businessmen and governments.

Despite helping the Brazilian economy, vaccination alone is no guarantee of advancing GDP (Gross Domestic Product), highlight economists. According to them, the biggest adversaries of growth are the water crisis, inflation, high interest rates and production bottlenecks. Together, these factors could erode part of the positive stimulus that immunization is giving to economic activity this rest of the year and in 2022.

Without vaccination, resumption did not last in 2020

Optimism about vaccination is reflected in GDP forecasts. In January, when immunization began, economists projected growth of 3.5% this year, according to analysts interviewed by the Central Bank in the Focus Bulletin. At the end of September, with the majority of the adult population vaccinated with at least one dose, bets point to higher growth, of 5.04%.

to Vinicius Lummertz, Secretary of Tourism and Travel of the State of São Paulo, came to be expected to resume last year, when the number of covid cases and deaths was falling in the country. But a second wave came, and the recovery did not hold up.

The resumption of the end of 2020 was lost later because everything closed. The difference from the resumption now is that we have the vaccine. Now it’s solid.
Vinicius Lummertz, Secretary of Tourism and Travel of the State of São Paulo

Circulation of people favors employment

The sectors that benefit most from vaccination are those that depend on the movement of people and on-site consumption and that have difficulty using digital commerce: bars and restaurants, beauty salons, barbershops and travel and tourism companies, corporate event companies, in addition to informal activities, from street vendors to service providers.

The activities that make up the service sectors are also the ones that employ the most, accounting for 51% of the employed population in the country, and that have greater weight in the economy, equivalent to 62% of GDP in the second quarter, according to the IBGE (Institute Brazilian Geography and Statistics).

Informal work, which accounts for about 40% of the employed population, is being directly benefited by vaccination, says economist Fausto Augusto Junior, technical director of Dieese (Inter-Union Department of Statistics and Socioeconomic Studies).

The Ministry of Economy, in a report, also says that: “mass vaccination has contributed to the safe resumption of activity and, consequently, employment. In this process, there is an improvement in services and trade, which were severely affected. by the pandemic”.

The unemployment rate dropped from 14.7% in the quarter ended in April to 13.7% in the quarter ended in July, with around 700 thousand less unemployed. The employed population increased by 3.6%, in a quarter, or seven million people in a year, reaching 89 million workers, according to the most recent data from the IBGE.

But the level of unemployment is still high, with 14.1 million people in line for work.

Lively trade for the end of the year

In retail, sales in July rose 1.2% compared to June, the fourth consecutive positive result, according to the IBGE.

With more people circulating and immunized, the trade is optimistic for year-end sales, both among street retailers and among shopping malls.

The President of Alshop (Brazilian Association of Shopping Shop Owners), Nabil Sayoun, says that sector sales at the end of this year may surpass the pre-pandemic performance.

The expectations we had months ago were not good, but we are seeing that, with vaccination progressing, sales are reacting very well. Considering that by November we may have more than 90% of the population vaccinated with a 2nd dose, we see room for better year-end sales than in 2019.
Nabil Sahyoun, President of Alshop

The coordinator of the Trade Survey of the Ibre FGV (Brazilian Institute of Economics at FGV), Rodolpho Tobler, highlights, however, that despite the control of the pandemic, other factors are affecting trade, which fell by 3.1% in August. He cited inflation as one of those obstacles.

See below what can hamper economic growth even with vaccination advancing.

Travel approaches pre-pandemic performance

The same happens in the travel and leisure sector, point out businessmen in the sector.

In the domestic market, where restrictions have been relaxed almost entirely, sales are growing at a rate of 20% per month, compared to the previous month. In the international segment, where there are still restrictions from countries awaiting greater immunization of the Brazilian population, recovery is slower.

Vaccinated people feel more comfortable planning and buying trips. This became clear as each age group was vaccinated. First, we saw greater demand from people over 60 years old. Then, those over 50, and today we see more demand from people over 30 years old.
Roberto Nedelciu, CEO of Braztoa (Brazilian Association of Tour Operators)

Covid’s second wave caused a sharp drop in flight sales until May, says the president of Abear (Brazilian Air Companies Association), Eduardo Sanovicz. Since then, as the pace of vaccination gained speed, the air network began to grow month by month and should remain so until the end of the year, when the sector will have 90% of the operation that existed before the pandemic. Well above 9.1%, which was the percentage of the sector at the worst moment of the crisis, in the first quarter of 2020.

Indirect impact on construction and industry

According to data from the Cbic (Brazilian Chamber of Construction Industry), real estate launches grew 114.6% in the second quarter and sales had an expansion of 61%, but the final offer fell 7.1%, to 180,007 units.

In industry, says the manager of economic analysis at the CNI (National Confederation of Industry), Marcelo Azevedo, the impact of vaccination is being indirect. As consumption in commerce grows and storekeepers’ stocks need to be replenished, orders for industry tend to increase.

Obstacles to growth

But optimism about vaccination can be frustrated by a host of problems that hamper the economy.

With the vaccination, we get the goat out of the room, but we return to our other problems.
Sillas de Souza Cezar, professor at FAAP (Armando Álvares Penteado Foundation)

The main factors are:

The main risk for our scenario at the moment is the hydrological crisis.
Solange sirour, chief economist of Credit suisse

The lack of water and the increase in energy have already increased the costs of the entire productive sector. This means more inflation, which, in turn, represents a greater need for the Central Bank to raise interest rates. Higher interest affects consumption and investments. In Credit Suisse’s accounts, for every 5% drop in lower energy consumption, the economy grows 0.6 percentage point less.

Inflation reduces income mainly for families with minors. power acquisition, which are the majority in the consumer market, affecting the entire economy.
Juliana Inhasz, economist and professor at Insper

More expensive energy is pushing inflation up, but other factors are also fueling higher prices. Inflation reduces the profit margin of companies, which end up having less money to invest and hire. Rising prices also affect families.

To contain the rise in prices and bring inflation back within the target, the BC accelerated the increase in the basic interest rate, the Selic. But this remedy has a side effect, which is exactly to slow down the economy, highlights the president of Cofecon (Federal Economics Council) and professor at PUC-SP (Pontifical Catholic University of São Paulo), Antonio Corrêa de Lacerda.

Sales growth in the second quarter would have been higher if not for the bottlenecks in the supply of inputs and raw materials, which are already increasing costs and affecting the pace of construction.
José Carlos Martins, president of Cbic

The interruptions in industries during the pandemic in Brazil and in the world generated a pent-up demand for raw materials and inputs, which are lacking in different sectors of the economy, from civil construction to the manufacture of automobiles and household appliances.