Brazil Faces a Weak Recovery Weighted by High Unemployment and Inflation | Economy

President Bolsonaro, this Tuesday during the signing in Brasilia of a cooperation agreement between NASA and his Government.
President Bolsonaro, this Tuesday during the signing in Brasilia of a cooperation agreement between NASA and his Government.Eraldo Peres / AP

The coronavirus vaccination is finally picking up speed in Brazil, which has improved the prospects for economic growth in an outlook hampered by fears of a third wave of infections, high unemployment and accelerated inflation despite the economic slowdown due to the pandemic. After an increase in GDP of 1.2% in the first quarter, the agency Moody’s forecasts that it will close 2021 with growth of 4.9%, which represents an improvement in its forecasts for an economy that last year fell on 4, 1%.

The pandemic stopped the liberalizing agenda that the government of Jair Bolsonaro is now trying to reactivate with the privatization of Eletrobras and an avalanche of infrastructure tenders. But unemployment is at 14.7% (almost 15 million unemployed) and inflation is advancing rapidly while the Executive considers extending the coronavirus pay for the poorest for three more months. Since the beginning of the COVID crisis, Bolsonaro opted to prioritize economic management over health, insisting on the idea that “hunger also kills.” And still a few days ago he defended that getting infected is more effective than the vaccine.

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The rise in the economy of 1.2% registered in the first quarter was surprising. Brazil, where restrictions were relatively lax compared to Argentina or Chile, is catching its breath after a 2020 marked by the pandemic in which only the agricultural sector grew, with soy in the lead and driven by a real that is among the most depreciated currencies in the world.

Bolsonaro and his economic czar, the ultra-liberal Paulo Guedes, started their terms in 2019 with an aggressive agenda to thin the state. They closed that year with prestige in the financial market for having carried out the pension reform. However, the pandemic stopped that plan in its tracks. The harsh reality forced them to make a 180 degree change. They implemented one of the largest public aid programs in the world, with direct payment to the pocket of half of the Brazilian families. This initiative briefly stopped the increase in poverty, but increased public debt, which ended 2020 at almost 100% of GDP. The Government now plans to extend for three more months that emergency aid of 250 reais (around 41 euros) which now reaches 45 million families.

“The Government granted emergency aid (covid pay), which had a short-term effect. However, we continue with closed schools, we do not invest in technology and we do not prepare for this moment with public policies for the workforce. Structurally we are worse off ”, says the economic consultancy Zeina Latif.

The optimism in the growth projections is tempered by the advance of inflation. In May it was 0.83% and reached 8.03% in 12 months. It is a result well above the goal, which ranges from 2.2% to 5.2% in this country that domesticated inflation in the 1990s. To stop it, the Central Bank has raised interest rates for the third time this month and a fourth is expected in August. “The rates will have to be raised much more; and that will have an impact on the cost of credit and will delay the recovery ”, explains Latif. “The projections of improvement in the economy are more of a cyclical recovery than growth,” he completes.

The law that will allow private capital to have 60% of Eletrobras is moving firmly towards its approval in the Chamber of Deputies after being approved last Thursday by the Senate.

With the pension reform achieved in his first year in office, the other two major economic projects of the Bolsonaro-Guedes duo (the tax reform and the public administration reform) are stuck in Congress and the original terms have been watered down. “Infrastructure can be the great driving force behind recovery,” said the minister of the sector, the engineer and military in the reserve Tarcisio Gomes Freitas, at the beginning of the month. That day he announced a batch of tenders for airports, railways, ports, highways … “The goal is job creation,” he told a group of correspondents. “Money has no stamp (of origin). He is welcome wherever he comes from, ”he replied when asked about the president’s synophobic statements.

In recent weeks vaccination has accelerated. Although less than 12% of the 210 million Brazilians have received the two doses, more than two million people were immunized last Thursday, after the process began with a slowness that so exasperated the economic power that it urged the Government to take it. seriously this year. In a public letter, the representatives of the economic sectors said that, without vaccination, there would be no economic recovery. The wake-up call took effect.

Bolsonaro’s is a government that for months ignored the offers of the pharmaceutical companies and in which some minister has been secretly vaccinated. For months, the injections came thanks, above all, to the initiative of the governors.

This delay in the negotiation of vaccines now affects the cost of recovery, experts such as Claudio Considera assess. The pandemic has kept sectors such as commerce and services disorganized, with many casualties due to the economic crisis. “There is 73% of the GDP that is not working in its entirety”, estimates the economist of the Brazilian Institute of Economics (IBRE) of the Getúlio Vargas Foundation.

Both the rate of vaccination and the management of the pandemic impact recovery. President Bolsonaro has campaigned against social distancing and, encouraged by him, part of the population does not wear a mask, does not even believe in the existence of the virus. That can delay the total reopening of the economy, because the virus will continue to circulate and the infections will not subside easily. Economists also do not know what the impact of the 500,000 deaths from the pandemic will be on the job market. The fatality remains high, with more than 2,000 deaths a day.