Paraguay expects GDP to fall

RIO DE JANEIRO, BRAZIL – The international scenario is increasingly complex, and Paraguay is not exempt from the situation. The negative effects continue to hit the economy and threaten to put even next year in trouble. The external and local effects caused the economic projections to take a significant turn, and a drop in the gross domestic product (GDP) is now expected for 2022.

In this context, the consulting firm Basanomics, in its March 2022 update, forecasts an economic deterioration of between 0.5% and 1.0% for this year after estimating an upturn of 4%. It also predicts inflation to go up to 6%, as a baseline scenario, with a fiscal deficit of up to 3.5%.

Basanomics economist Santiago Peña said the Paraguayan economy “rebounded” after declines in 2019 and 2020. However, in 2021 it was observed that it stopped growing since March. “An example that we had already said in a 2020 edition was that we should avoid the economy having the behavior of a dead cat. If you throw a dead cat from a second floor, it will bounce back, but that doesn’t mean it’s alive,” he said.

Regarding the consultant’s updated projections, the economist indicated that in all variables, they observed an economic deterioration with a fall of the GDP compared to what was expected three months ago. “In December, we expected the economy to grow 4%, but today we are already estimating a fall. There will certainly be a fall in GDP, which will create a tremendous problem,” he said.

INFLATION

On inflation, Peña commented that from Basanomics, they assume a consumer price scale that would be between 6% and 6.5%, with a fiscal deficit between 3 and 3.5%. “Regarding the exchange rate, we observe a determination of the Paraguayan Central Bank (BCP) to fix the dollar, so we do not see significant changes. We see that the dollar value would be at PYG 7,200″, he stated.

Among the conclusions, Basanomics indicates that the greatest cost of the crisis, in addition to human lives, was the deterioration in employment levels, its recent greater precariousness, and the increase in poverty. Economic policy was crucial for containing the effects of the pandemic, but its normalization was delayed, generating costs that today affect the most vulnerable sectors.