The true “V-shaped recovery” of the Brazilian economy should only be complete, in an optimistic scenario, by the end of 2025. For this to happen, however, the country will need to practically double the growth rate of the 2021-2022 period from 2023.
According to calculations made by the coordinator of the FGV Ibre Macro Bulletin, Silvia Matos, at the request of sheet, the last quarter of 2025 is the one in which the economy may return to the level it would have been if the growth trend observed from 2017 to 2019 had not been interrupted by the coronavirus pandemic.
A similar exercise carried out by the OECD, in its most recent report, showed that the economies of the G20 countries will reach the level that would be the pre-pandemic trend in the last quarter of 2022. For the group of emerging countries, this recovery is not within the horizon of entity.
Currently, Brazil’s GDP (Gross Domestic Product) is at the same level as at the end of 2019, but it is about 2% below this pre-crisis trend. The gap will still widen until the end of 2022, due to the low growth expected for next year, and only then will it start to retreat.
“We keep celebrating returning to the pre-pandemic level, but it’s not just returning to what you were in 2019. It has to be the ‘V’ that returns to the trend”, says the economist. “Going back to our previous mediocrity, it’s not worth celebrating.”
The work considers as a trend the continuation of an average quarterly growth of 0.45% (about 1.8% annually), the same observed in the period of low growth after the 2014-2016 recession.
Due to the pandemic, the country had an average growth of 0.1% since the beginning of 2020, an average that should reach 0.2% by the end of this year. In 2022, the economy would grow 0.4% per quarter, still below the previous trend, according to Ibre’s projection.
From 2023 onwards, it would have to accelerate to 0.7% on average (almost 3% per year), to close the recovery until 2025. The historical series of the IBGE (Brazilian Institute of Geography and Statistics) shows an average performance of 0, 6% from 1996 to 2019.
Silvia Matos states that this is an optimistic projection, but not impossible to materialize. “We would need to have a scenario of a new government, a new life, a turning page. In other words, with that enthusiasm: the exchange rate appreciates, resources come in, there is a reform agenda”, he says.
“It’s an optimistic scenario, which would be to grow 1.5% next year, flee from rationing and get a government that promotes an acceleration of growth.”
The economist recalls that the average growth from 2017 to 2019 already represented a weak economic performance and that it was not able to solve the problem of high unemployment generated by the previous recession.
She also calculated how far Brazil’s GDP is from the growth trend prior to the 2014-2016 crisis. The difference was 18% at the end of 2019 and currently stands at 22%, a level that should remain unchanged until 2025.
This represents a difference of around R$1.5 trillion in GDP for the year, considering the total of R$7.4 trillion calculated by the IBGE in 2020.
Unemployment rate is expected to remain high until 2026, says FGV
Another point highlighted by the researcher is that, unlike most of the major world economies, Brazil accumulated in almost a decade two shocks in which the return of GDP was not accompanied by a return of employment to the levels prior to these crises.
FGV Ibre estimates that unemployment will be at 12.7% at the end of 2022, still above the level at the end of 2019 (11.6%).
“We look at the GDP trend, but what is the scar caused by this? The biggest scar from the pandemic is in the job market. We are very far from any reasonable level, below 10%, which is not yet on the horizon.”
In the OECD report, the entity outlined the biggest economic challenges for each country. In the Brazilian case, the issue of job recovery was identified as more important than the resumption of GDP. According to the organization, the level of occupation is 5.8% below that verified at the end of 2019, the second worst percentage among 13 selected economies, behind only 8.2% in South Africa.
In the last letter from Ibre, the institution’s director, Luiz Guilherme Schymura, states that high unemployment may persist until 2026.
“The drop in the unemployment rate to levels close to the average between 1995 and 2019, of 9.7%, depends on a very strong acceleration of the Brazilian economy in relation to the pattern of recent growth”, says Schymura.
According to the institution’s calculations, for the unemployment rate to fall to 9.8%, an annual growth of 3.5% from 2023 to 2026 would be necessary.
He also recalls that the labor market recovery has currently been led by the informal sector and poorer quality jobs.
These are occupations that generate lower income, which is reflected in the wage bill and, in turn, contributes to reducing household consumption, also impacted by the increase in inflation.
In 2020, with emergency aid, the expanded mass, with income from work and other benefits, reached the level of R$ 4.1 trillion. With the reduction of stimulus measures, this value should drop 4.7% this year, a loss of almost R$ 200 billion compared to the previous year. It will also be 2% (about R$80 billion) below the level at the end of 2019.
For 2022, the institution projects a growth of 3.4%, zeroing the losses of the pandemic, but still around R$ 60 billion far from the year in which emergency aid with a value of up to R$ 600 was paid.