RIO DE JANEIRO, BRAZIL – Since the end of the recession in January 2017, in only 10 of the 33 months of the period, the Economic Uncertainty Indicator (IIE-Br), calculated by the Brazilian Institute of Economics of the Getúlio Vargas Foundation (Ibre/FGV), was below the level of 110 points, a level above which uncertainty is considered high.
With the end of the recessive period, a reduction in uncertainty was expected, but the political turbulence has prevented this accommodation, shows an unprecedented breakdown of the IIE-Br, obtained by the newspaper ‘O Estado de S. Paulo’.
According to Fernando Veloso, Ibre/FGV researcher, when it reached its peak in September 2015 (136.8 points), both uncertainties related to the fiscal crisis and those associated with political turbulence were high in the IIE-Br. From the end of 2016, concerns about the fiscal crisis eased, but political turbulence continued on the radar, even after the election and inauguration of President Jair Bolsonaro.
“There is some evidence that fiscal uncertainty, with the approval of the spending ceiling in 2016 and the advance of the Welfare reform this year, has decreased but is still very high. Now, the uncertainty of a political nature has risen and, despite ups and downs, has remained at a very high level. If it was only the fiscal factor, the uncertainty should have decreased a little, but politics do not allow for that”, said Veloso.
Dubious signs
To support this assessment, Ibre/FGV researchers have split the IIE-Br Media into two. IIE-Br Media is the sub-index that measures mentions of expressions associated with economical uncertainty in news published in the press.
One disaggregate measures the references to political uncertainties; the other, references to fiscal uncertainties. In the accumulated period from January 2017 to August this year, the aggregate of political uncertainties fell only 0.2% (to 121.6 points), while the aggregate of fiscal uncertainties shrank by 5.9% (to 115.2 points). In the accumulated period from 2019 to August, the first aggregate accumulated a 10% increase, while the sub-index of fiscal uncertainty advanced 2.2%.
The political uncertainty had already risen in the October elections last year, Veloso recalled. “At the time of the elections, there was a great polarization. Depending on who won the elections, policies would be radically different,” he said.
The point is that the picture did not improve with the election of Bolsonaro, according to disaggregated data from the IIE-Br. “Even now, despite all the commitment of [Minister of Economy] Paulo Guedes and his team to liberalizing reforms, we see dubious signs, not of him, but of Bolsonaro and other areas of government,” Veloso said.
The style of the president, who uses social media to communicate directly with his supporters and often makes controversial statements, also contributes to raising political uncertainty.
“It is in Bolsonaro’s nature to do so. That’s his political style. It may even be convenient for his political profile, but for the economy, it contributes to raising uncertainty,” Veloso said, noting that something similar happened in the United States.
“U.S. uncertainty has increased a lot with [President Donald] Trump, with the use of Twitter, statements, and back and forths in the trade dispute with China.
According to Veloso, the political turbulence fuelled by the government itself and by President Bolsonaro has an additional effect on uncertainty in the economy.
Source: O Estado de S. Paulo