Brazil Must Rely on Internal Measures to Dodge Global Slowdown

RIO DE JANEIRO, BRAZIL – According to economists, Brazil needs to take actions that range from continued structural reforms to measures to boost demand, so that the economic upturn is not stalled.

Last week, the International Monetary Fund (IMF) reduced from 3.2 to 3 percent the world economic growth forecast for 2019. The fund also revised its 2020 estimate downwards: from 3.5 to 3.4 percent. Since 2017, when the global economy grew by 3.8 percent, the world has been experiencing a slowdown.

For Brazil, the IMF has adjusted the 2019 economic growth forecast from 0.9 to 0.8 percent. Earlier this year, the estimate stood at 2.5 percent. For 2020, the scenario for the Brazilian economy should be better, but the international body has reduced the growth projection from 2.4 to 2.0 percent.

Reforms

Professor at IBMEC University and economist at Órama Distribuidora de Títulos e Valores Mobiliários, Alexandre Espírito Santo says that Brazil can emerge relatively unscathed from the global slowdown if it pursues its reform agenda after the Social Welfare reform is approved.

“The IMF itself pointed out in its report that the Welfare reform alone is not enough to ensure the sustainability of [Brazil’s] economy. The country needs to pursue tax and administrative reforms in order to reduce public spending and modernize the state,” Alexandre said.

According to the economist, two external factors will provide Brazil with an advantage next year.

The first is low interest rates throughout the world, which should continue to attract part of the financial capital to the country, even with the Selic rate – the economy’s basic interest rate – at its lowest level in history.

The second is the instability in emerging countries, such as Argentina, Mexico, and Turkey, which, in his assessment, are experiencing more difficult situations than Brazil.

“Brazil remains attractive for international investments, whether in the financial market or in direct [corporate] investments, even with a more difficult external scenario in 2020. But everything hinges on whether the country does its homework and continues with its internal reforms,” he says.

Demand

André Nassif, a professor at the Fluminense Federal University and a specialist in international economics, says Brazil needs to adopt internal measures. However, he disagrees with the IMF’s assessment that reforms alone are enough to prevent the Brazilian economy from slowing down next year.

“The government needs to move beyond reforms and find some fiscal policy mechanism that allows the recovery of public investments, which generate employment initially and increase aggregate demand,” Nassif says.

According to him, one of the options could be to remove public investments from the federal spending ceiling, but he believes that the government should consider alternatives.

“The measures taken so far, such as withdrawals from the FGTS [Workers’ Severance Premium Reserve Fund] and the reduction of interest rates by the Caixa Econômica, have little strength to reactivate the economy. Deeper actions are required to stimulate demand,” he advises.

Source: Agência Brasil