Find out what are the barriers for the Brazilian economy in 2021


posted on 12/05/2020 06:00

(credit: Carlos Vieira / CB / DA Press)

The market’s good mood in the face of “good winds” coming from abroad caused the dollar to fall and foreign investors to return to the Stock Exchange to take advantage of the year-end rally. However, the performance of the Gross Domestic Product (GDP) of the third quarter of 2020 below expectations, the increase in unemployment, the delay in the vote on the 2021 Budget by Congress, the uncertainties regarding the return of the contagions of covid-19 and the lack of clarity in the federal government’s vaccination plan are factors that should determine the pace of the economy next year.

After growing 7.7% in the third quarter of 2020, compared to the previous period, GDP should slow to between 1% and 2% in the last quarter, according to analysts, showing that the recovery process will not be easy or fast next year. Most estimates for the 2021 GDP vary between 3% and 4%, very similar to those that were made at the beginning of the last years, and that did not materialize.

The fact that the government is late in the race for the vaccine worries, especially because it will not be easy to set up a logistics project to immunize the entire population, as is being done in European countries. Silvia Matos, coordinator of the Macro Bulletin of the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV Ibre), stressed that a wide vaccination needs to be very well planned. “There is no way to be sure of recovery without vaccination. It will set the pace “, he stressed.

“I cannot see a stronger resumption in 2021, because the pandemic issue is imponderable and there are uncertainties regarding vaccination. It can take months, and it is not possible to estimate when the activity level will stabilize. And, when that happens, there is no way to predict an average growth rate above the pace before the pandemic, of 1% per year ”, evaluated the chief economist of Banco Fator, José Francisco de Lima Gonçalves. He predicts an increase of 2.2% in GDP next year.

Tatiana Pinheiro, chief economist at BNP Paribas Asset, recalled that the revision of GDP, decreasing the rates of decline in the first and second quarters from 2.5% and 9.7% to 1.5% and 9.6%, helped to reduce forecasts of this year’s inertial momentum for next year’s GDP, with the statistical load increasing from 2.5% to 1.9%. “There is a lot of uncertainty in the recovery process, because vaccination will affect the service sector and also the labor market.” According to the analyst’s projections, unemployment will continue to exceed October’s record rate of 14.4%, reaching 16% over the next year.


For Alessandra Ribeiro, partner of Tendencias Consultoria, which expects to advance 2.9% in the GDP of 2021, the stock market’s optimism is detached from the reality of the Brazilian economy, as it does not include fiscal risks in the account. “There are many uncertainties in relation to the fiscal, because nothing of the 2021 Budget is defined, and this will limit the ability to resume activity”, he warned. “We are not sure whether there will be aid, a new social program or an expanded Bolsa Família. And, even with an extended scholarship, the job market should not recover so easily ”, he added.

According to Trends’ calculations, the expanded income mass is expected to shrink 4.2% next year, even with the occupancy rate growing 5.5%. “The reform agenda has made little progress and, therefore, from an economic point of view, this government has not given much in these two years to help the country have a more robust recovery”, lamented Alessandra.

Public account specialist Gabriel Leal de Barros, chief economist at RPS Capital, considers the tax issue a determining factor for growth in 2021, and expresses concern about the delay in voting on the Budget, as the government will still need to review mandatory expenditures for meeting the spending ceiling – constitutional amendment that limits spending growth to inflation in the previous year – even if emergency relief is not extended. “The government has to cut R $ 26 billion in 2021 and R $ 9 billion in 2022, even without a new social program,” he said. He classified fiscal imbalance “as the main challenge for the country, just as hyperinflation was for the 1980s and 1990s”, and stressed that it is not the time for economic experimentation and creative solutions, often easier and more tempting, “At the risk of facing a new lost decade”.

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