Global Alert – 10/17/2020 – Opinion

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There was good news in the review of the economic scenario released by the International Monetary Fund (IMF), on the occasion of its annual meeting. The projection for global contraction in 2020 has been lower, due to the support provided by governments with more spending and interest cuts. However, the exit from the crisis will be slow and leave scars.

According to the Fund, the world economy is expected to shrink 4.4% this year, less than the 5.2% estimated six months ago. For 2021, the expectation of recovery was adjusted from 5.4% to 5.2%.

Almost all regions had better prospects. The United States and Europe will see less acute declines in Gross Domestic Product, as does Brazil – for which the IMF now projects a 5.8% contraction, against 9.1% before.

Only China will grow, by 1.9% this year and an incredible 8.2% in 2021, according to the organization. In the aggregate, considering the Chinese exception, the return to the level of activity before the pandemic will only occur in 2022 or 2023.

Until then, the risk of permanent damage to the job market is high, caused by the closing of companies, especially smaller ones.

Inequality is expected to increase, with a reversal of part of the progress made in the past two decades in combating poverty.

Another damage is caused to financial health, in view of the jump in public indebtedness due to high spending and tax cuts, estimated at US $ 12 trillion, to combat the effects of Covid-19.

In developed countries, debt will grow by 20 percentage points, to 125% of GDP by the end of 2021, while in the emerging world the proportion will reach 65% of GDP. According to the Fund’s criteria, they will be over 100% in Brazil.

There are certainly more positive hypotheses. If the expectation is confirmed that there will be effective vaccines for wide distribution by mid-2021, economic growth may be greater than expected. Meanwhile, the IMF suggests that countries with greater fiscal space extend part of the stimulus to next year.

Even so, there is an alert for the size of the debt and the need to seek income with higher taxation from the wealthiest and reduction of wasteful subsidies.

Such concerns are especially important in the case of Brazilians, given the dire state of government finances. With the greatest debt among the emerging and increasing risks of financial instability, the country has no option but to adjust the budget and carry out reforms, including more progressive taxes.

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