RIO DE JANEIRO, BRAZIL – Even with the growth of the Brazilian economy in 2021 and the overcoming of a good part of the losses of 2020, it should still take another seven years for the Brazilian population to recover the income and wealth level they had in 2013 – the last year before the last crises when the best historical mark of Gross Domestic Product (GDP) per capita in the country was recorded.
The forecast is from a survey by the Brazilian Institute of Economics of the Getulio Vargas Foundation (Ibre/FGV).
The official GDP and GDP per capita results for 2021 will be released on Friday, March 4, by the Brazilian Institute of Geography and Statistics (IBGE). Analysts estimate that the Brazilian economy grew around 4.5% after the 3.9% tumble in 2020, while GDP per capita grew slightly less.
The GDP per capita results from the ratio between the sum of all goods and services produced in the country and the number of inhabitants. As Brazil continues to register population growth, when there is a downturn in the economy, the population’s level of wealth and income usually shrinks more sharply than the GDP.
In other words, the cake became smaller and had to be divided among more people, leaving Brazilians poorer.
The GDP per capita works as a thermometer to evaluate the well-being and income level of a nation, despite its limitations, due to the country’s inequalities and the fact that wealth is not distributed equally to the entire population.
According to Ibre’s calculations, Brazil would need to grow at an annual rate of at least 3% from now on to regain by 2026, still during the next presidential term, the wealth and income level that was in place before the 2014-2016 recession hit. This scenario is currently considered “almost impossible”.
The base scenario estimates that only in 2029 will the GDP per capita recover the level of 2013. Still, for this, Brazil needs to maintain an average annual growth rate of the economy of 2.4%.
“Our projection even has a downward bias since we understand that 2022 and 2023 will still be difficult. To return to an average GDP growth rate of more than 2% is not trivial. And, if we achieve this, it will only be in 2029 [that we will return to the pre-crisis level]. That is, 16 years after the 2013 peak,” says economist Silvia Matos, coordinator of the Ibre Macro Bulletin and author of the survey.
The researcher estimates that the GDP per capita ended 2021 1% lower than before the pandemic (2019) and 7.7% below the historical high of 2013.
Financial market economists are currently projecting an advance of only 0.30% of the GDP in 2022 and 1.50% in 2023, well below the global average.
RISK OF A NEW DECLINE IN 2022
With the economy still sluggish, the increase in global uncertainty with the war in Ukraine, and interest rates being raised to contain inflation, the risk of a firmer recovery is that the GDP per capita will fall again in 2022 even with economic growth in the year.
The scenario expected by Ibre for the GDP in 2022 is slightly more optimistic than the market average, of 0.60% growth, but still insufficient to avoid a drop in per capita GDP in the year, estimated at -0.1%.
“The GDP depends on how many people you have to share the cake with. In Brazil, despite the low GDP, the population is still growing. The IBGE expects that the population will grow around 0.7% in 2022. As our projection for the GDP is an advance of 0.6%, this calculation shows that unfortunately there is not enough cake for everyone”, explains Silvia Matos.
In the economist’s view, what should give some support to the economic activity in the year should be the continuity of the normalization process in the services sector, especially in the more face-to-face segments and public services, amid the advance of vaccination and relaxation of restriction measures to contain the spread of the coronavirus.
“The year 2022 begins with a terrible legacy on several fronts. We close 2021 with extremely high, persistent, and widespread inflation, which greatly challenges the Central Bank to raise interest rates further. We continue to have high commodity and energy prices worldwide, we have geopolitical tensions, and we have domestic elections, which already makes for a troubled year,” says the Ibre researcher.
Analysts have been warning about a scenario of greater domestic uncertainty on account of the presidential election year.
“In an election scenario, investment is harmed because it needs predictability. We don’t know who the new government will be. What could have a slightly better growth would be consumption, but the rising interest rates and still strong inflation take away the purchasing power of families. So, there is not much room for growth in per capita GDP this year”, says Silvia.
For now, the Ibre projects a 1.1% growth in GDP and a 0.4% advance in per capita GDP for 2023.
An average advance above 2% is only seen as possible from 2024 onwards, corresponding to an annual per capita GDP growth of around 1.5%. Such a performance would allow economic activity to return to the level of the 2013 peak from 2024 on, while the wealth pattern of the population would only be recovered in 2029, with a five-year delay concerning the GDP in current values due to the population growth since the beginning of the crises.
IMPOVERISHED BRAZILIANS
Although the GDP is not divided equally for all Brazilians, a series of indicators show the population’s impoverishment, increasing inequality, and loss of purchasing power due to inflation.
Even with the drop in unemployment in recent months, the labor market’s recovery has been led by the increase in informality and by precarious occupations or self-employment with lower and very variable pay.
“Not only are we poorer in aggregate terms, but we observe an economy still suffering scars from the pandemic crisis because the shock is unfortunately very heterogeneous across sectors and workers. Therefore, it is still a very challenging scenario to return to the pre-pandemic’s income and consumption growth pattern,” highlights the Ibre coordinator.
A HISTORY OF LOW GROWTH
Brazil’s biggest challenge is to be able to resume a steady and uninterrupted growth path.
It is essential to highlight that the poor performance observed in the last decade is the result of the pandemic and the harsh recession recorded between the end of 2014 and 2016 and the weak recovery in the following three years.
From 1981 to 2021, the average GDP growth rate per capita was only 0.7% per year, according to the Ibre survey. The last decade (2011 to 2020) was the worst in history, with an average contraction of 0.6% per year, an even worse result than the one recorded in the 1980s when Brazilians were on average 0.4% poorer each year. The average annual loss was 2%, considering only the period from 2015 to 2020.
For the country to break the history of low growth and accelerate the recovery, the Ibre economist lists the need for a plan that includes:
- control of inflation and consequent reduction in interest rates and improvement in the cost of credit;
- balance in the public accounts and the return of the government’s primary surplus (it has now been eight years in a row of accounts in the red);
- reduction in political and fiscal uncertainties;
- improvement in business confidence and more formal jobs created;
- advancement of the reform agenda, such as tax reform and improvement of the business environment.
“There is no silver bullet for economic growth, but Brazil stands out negatively in several aspects. Reforms are difficult to do because there are always losers. Still, tax reform could help a lot to penalize productive companies less, as well as a plan of economic efficiency, trade opening, and increasing productivity,” says Matos.
With information from G1