GDP: The economy should have a better result than in 2014 – 09/01/2022. – The market

Brazil’s economy should have its strongest growth this year since 2014, probably something close to 2.6%. Yes, in 2021 GDP grew by 4.6%, but almost all of this is a recovery from the decline of the first year of the epidemic (when GDP fell by 3.9%): it gets worse. After the Great Recession, between 2017 and 2019, average growth was 1.4%.


This year was a year of extraordinary or artificial economic stimulus, whatever you want to call it. There was the announcement of the withdrawal of FGTS, for example. This third quarter saw the payment of the biggest Auxílio Brasil, a tax reduction and a drop in energy prices (fuel and electricity).

Nevertheless, the growth of the economy was significantly above the average expectations of economists from the private sector. Even excluding the effect of government stimulus, growth would be higher than the even tougher average for the years 2017-2019. What else can explain the relative, very relative improvement?

The price of goods, goods that we sell to other countries (food, minerals, oil) is high, which increases income, consumption and investments in these sectors and their aggregates. Investing in public works, civil engineering, is relevant in this election year in which states and city halls have full cash, otherwise.

In addition, there is still reopening and recovery of sectors damaged by the epidemic (such as face-to-face services). Transportation services are doing well, probably due to commodities (international trade, grains, etc.) and e-commerce, which has gained momentum with the epidemic.

GDP of the service sector continues to grow strongly. This is 3.7% above the pre-pandemic level. Total GDP (of the entire economy) is 3% above the level at the end of 2019.

The wage bill (sum of income from work) is growing more than 6% per year in real terms (without inflation), although the average wage is still at the worst level of a decade, since 2012. The worker is cheaper. Now there is some slowdown in the pace of hiring, which is still strong.

At the end of the day, there may still be some residual improvements to explain (GDP “surprises”), although growth without “gimmicks” should not be much higher than the 2017-2019 average. Did the “reforms” help (facilitating private investment, changing labor laws)?” Maybe that’s a topic for discussion, although nothing big should have happened, far from it.

GDP, the size of the economy (income or output) in 2022 should be the largest since 2014, but GDP per capita (income or output divided by population) will still be higher or lower than in 2010. In this indicator, the less imprecise term ” wealth”, we have been standing in place for ten years, so. At the rate of growth in 2022, we would not return to the per capita income (GDP) of 2013 and 2014 (the highest in history) until 2025 or 2026. So, we will be permanently poorer.

Regarding the very short term, the last quarter, the results were good. The investment rate was 18.7% of GDP, the highest since 2014. Investment rate: how much of the economy’s income, what part of GDP, is intended for expanding production capacity.

Domestic demand increased in the quarter, in contrast to the first three months of this year. That is, household consumption, government consumption and investments far outweighed the negative effect of imports, which was greater than exports.

If the economy stops growing by the end of the year, GDP in 2022 will be 2.6% higher than in 2021 (that is, if the quarter-over-quarter change in GDP is zero, the economy would still grow that much throughout the year ). But it is possible that the GDP in this third quarter still had a positive result, a growth of close to 0.3% (the second quarter growth was 1.2%, the first 1.1%).

Banks say there were signs of a slowdown in spending and credit in August, although July was good. Obvious note: slowing down means slowing down, not going backwards. The confidence of consumers and entrepreneurs, measured by FGV, still had an almost general growth in August.

The incredible increase in government revenue, still high job numbers, fiscal stimulus (government spending and tax cuts), still growing credit and low industrial unemployment indicate that the pace of the economy has been going well. until at least July.

At some point, the economy is likely to cool — it is expected to grow between zero and 0.5% in 2023, informed “market” assumptions say. No more government stimulus, commodity prices are falling, the world is growing less, interest rates are up _the real prime rate is at its highest level since the 2015 recession.

But if the pace was expected to slow in the second quarter (but it did pick up), go to zero in the third quarter (it doesn’t seem like it will) and have a small recession in the fourth _maybe it won’t.

It may happen that the state of the international economy takes points away from GDP growth, which is even more difficult to predict. Of course, the growth forecasts we’ve been looking at since the end of last year were quite wrong.

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