Brazilians’ Income Should Tumble More Than That of Most Countries

RIO DE JANEIRO, BRAZIL – The loss of income for Brazilians with the impact of the Covid-19 pandemic will be greater than that of the vast majority of countries, shows a survey by the Brazilian Institute of Economics of the Getúlio Vargas Foundation (IBRE-FGV) based on IMF data.

According to the International Monetary Fund’s projection, Brazil’s per capita GDP – used here as a synonym for per capita income – which was US$14,100 (R$75,667) in 2019, is expected to drop 5.9 percent this year.

This places the country behind 121 of the 191 economies monitored by the IMF, according to data compiled by economist Marcel Balassiano.

“Today we have many uncertainties, about virtually everything. One of them is that everyone, or virtually everyone, is going to come out of this crisis poorer than they came in,” Balassiano says. “But most countries will still perform better than Brazil,” he adds.

Brazil’s GDP decline is expected to be higher than that of other emerging countries, such as Russia (-5.3 percent), and its Latin American peers, such as Uruguay (-3.3 percent), Peru (-5.4 percent), Colombia (-3.3 percent), and Paraguay (-2.3 percent).

In Europe, once the epicenter of the pandemic, the economies should suffer more. For instance, Italy’s per capita income is expected to drop by 8.9 percent this year; in the United Kingdom it will be -7.04 percent, and in Germany, -6.9 percent. The US economy is expected to decline by 6.4 percent.

In 2021, when part of the losses is expected to be recovered, the Brazilian growth rate in this area is projected at 2.2 percent. Thus, the country will be behind 73 percent of 190 economies.

The result is even worse when considering the 2020-2021 period, which ranges between a recession and a potential rebound. In this interval, the growth rate of Brazilian income loses to that of 77 percent of 190 countries.

However, despite these variations, Brazil’s position in the per capita GDP ranking does not change much. According to Balassiano, 45 percent of all countries (86 out of a sample of 192) had a higher per capita income level than Brazil in 2019. Projections for the same figure are 44 percent in 2020 and 45 percent in 2021.

Optimistic figures

According to IMF projections, 64 countries, which represent over 60 percent of the world economy, are expected to show their worst economic performance in decades. However, Balassiano points out that the scenario should be much worse in Brazil since the IMF figures date from April.

“Since then, the situation has worsened considerably here, largely due to the political uncertainty added to the health crisis,” he says.

At the time of its projections, the IMF expected the Brazilian GDP (-5.3 percent) to be better than the market, as determined by the domestic Focus Bulletin, of -3 percent. Today, the market’s projection is converging to – 6.3 percent. The IMF is expected to announce its new figures in July.

The expected deterioration in the labor market must also be considered, as it should become even more pronounced throughout the year, also reflecting on workers’ income, without a clear projection of a rebound. “The unemployment rate is always the last indicator to show improvement after a general economic rebound,” says the economist.

Just before the last recession in Brazil, from the second quarter of 2014 to late 2016, the unemployment rate was 6.8 percent. Three years after the end of the recession, the variable is still far from recovering, and reached an average of 12 percent in 2019.

“Adding up the unoccupied, discouraged, and under-occupied, the country already had nearly 70 million vulnerable Brazilians in the labor market before the pandemic began,” Balassiano says. “This time, the crisis took everyone by surprise, and it is very severe.

The decade was already lost

Brazil was already on its way, even before the pandemic, to completing a lost decade in terms of growth. If the GDP confirmed the two percent increase this year expected by most analysts in January, the decade between 2011 and 2020 would have an average growth of only 0.8 percent per year.

“This result would already be the worst of the past 120 years,” Balassiano says. Now that average tends to zero, he says.

The so-called lost decade alludes to the 1980s when the GDP grew an average of 1.6 percent annually. Despite evident differences in indices such as inflation and external vulnerability, economists see parallels in the conjuncture of the lost decades, such as a worsening of the international situation, liquidity crises, a drop in commodity prices, and inefficient economic policies.

Source: Exame