Global recession is a real risk, says ex-minister Joaquim Levy

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Global recession is a real risk, says ex-minister Joaquim Levy

For Joaquim Levy, director of economic strategy and market relations at Banco Safra, the bitter medicine of high interest rates in developed markets to fight inflation leads to a “concrete risk” of the global economy going through a period of recession in 2023 or 2024. .

“A small recession to rebalance the economy can be a quick way to get more investment back in 2024 and 25. In the United States, things are often resolved with surprising speed,” says Levy, in an email interview with Sheet.

The director of Safra, who was finance minister in 2015 and president of BNDES from January to June 2019, also says that a recession can affect the price of commodities, but that Brazil’s international reserves represent a valuable shield. “But we have to be careful.”

like mr. have you followed the evolution of Brazil’s fiscal framework in recent months? The Central Bank has commented in the minutes that the current situation is one of increasing uncertainty, with initiatives that may affect the behavior of inflation over time. The Copom did not include the most recent events in the last decision on the Selic, but signaled that they should consider it at the next meeting, which could affect future interest rate increases.

What are the prospects for the country’s macroeconomic framework in the second half of the year? The BC has signaled the expectation of a slowdown in the economy, probably due to the effect of inflation itself, which has reduced real family income. This year, the option of increasing debt to increase disposable income is also more difficult for most families, because interest rates are higher, and in some cases families will have to resume payments that were suspended during Covid.

Do central banks in developed economies need to accelerate the pace of interest rate hikes to control inflationary pressure on a global scale? Inflationary pressure is real. In part, because of demand shocks, such as the several trillions of US public spending in 2020 and 2021 that are still being digested; in another part, by supply shocks, such as the disorganization of production chains, and the question of oil and grain, which arose with the invasion of Ukraine by Russia.

The response to demand shocks is simpler, and interest solves the problem in a few quarters. Supply shocks are more complicated, because they represent an impoverishment, albeit temporary, of countries. So, when you look at Europe, and the energy shock that it is suffering, the ECB (European Central Bank) should be careful not to let inflation take root.

What is the risk of the global economy going through a recession in 2023? It’s a real risk. In the case of the United States, it would be a way to return to the trend trajectory, because they grew very fast in the wake of the increase in public spending, even considering the increase in imports. So a small recession to rebalance the economy could be a quick way to get more investment back in 2024 and 2025. In the US, things are often resolved with surprising speed.

What implications can a global recession bring to Brazil? Brazil has had an extremely favorable external environment over the last four years, with incredibly good commodity prices and low interest rates. A recession can affect the price of some commodities, which has been typical since the 19th century. We still have $300 billion in reserves, a shield created 15 years ago that remains very valuable. But we have to be careful.


X-ray | Joaquim Levy, 61

He is director of economic strategy and market relations at Banco Safra. Born in Rio de Janeiro in 1961, with a PhD in economics from the University of Chicago and a degree in naval engineering from the Federal University of Rio de Janeiro, Levy took over the Ministry of Finance in January 2015, at the beginning of the second Dilma Rousseff (PT) government. being replaced in December of the same year by Nelson Barbosa. From January to June 2019, he was president of BNDES, and he held the position of general and financial director of the World Bank, from January 2015 until November 2018.

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