Understand why Brazil’s GDP is stagnant and the country may experience recession

Despite the Brazilian economy having registered two consecutive quarters of retraction, it is still not possible to be sure that the country is in recession. Among economists, the assessment is that the situation is one of stagnation.

There is no official definition of what characterizes a recession. Although some economists use the metric that this is the period marked by two consecutive quarters of decline in activity, most institutes consider a broader analysis of data.

The term “technical recession”, for example, is considered technically mistaken by many economists, and the sheet recommends, in its manual, that it should not be used.

In Brazil, we highlight the analysis carried out by Codace (Committee for Dating Economic Cycles), an organization linked to the Ibre/FGV (Brazilian Institute of Economics of the Getulio Vargas Foundation) and formed by eight economists from different institutions.

For the committee, the decline in economic activity across different economic sectors is called recession. In June of last year, Codace defined that Brazil entered into recession in the first quarter of 2020, ending a three-year cycle of weak growth (2017-2019). There was no further announcement on the issue after that.

In the opinion of economist Fernando Veloso, a researcher at Ibre/FGV and member of Codace, the two consecutive quarters of negative GDP and close to zero suggest a stagnant economy.

“The result is, without a doubt, quite negative. The GDP is close to the level of the end of 2019. It is insufficient in view of everything that happened afterwards, in the pandemic”, he analyzes.

The coordinator of National Accounts at IBGE, Rebeca Palis, stated this Thursday (2) that the institute avoids calling variations of -0.5% to +0.5% of GDP as a decline or growth. “It’s a small variation [a queda de 0,1% do terceiro trimestre] which for us is stability.”

She said that defining two quarters of falling GDP as a recession doesn’t make much statistical sense, nor is it a concept used in other countries. He also stated that it is necessary to analyze a larger set of data to make this assessment.

Rafaela Vitoria, chief economist at Inter, says that the country is experiencing a situation of stagnation, not recession, as it projects stability in the fourth quarter and growth of 0.5% in 2022.

“We’ve been stagnant since 2019. Even before, growth was very low,” says the economist, referring to the post-recession period of 2014-2016.

Economist at Itaú Unibanco Luka Barbosa says he prefers to wait for a definition from Codace on the issue, but he said he sees a picture of recession ahead. The institution projects a drop of 0.5% of GDP for 2022.

“The economy is growing very little at the margin, close to zero. Our vision, looking more towards the future, is of a slight recession. I don’t find it easy to say that it is already in recession now. Codace is one of the institutions that will look into it. not just GDP, but other indicators to define it.”

The chief economist at MB Associados consultancy, Sergio Vale, also believes that the current GDP scenario is more like stagnation than recession.

“The numbers are very close to zero. The stagnation is in that sense. What worries us is the risk of going into an even more complicated situation, with a persistent inflationary scenario, high interest rates and electoral risks in the next year.”