Analysis: Ômicron adds interest and election as an obstacle to resumption

The GDP result released by the IBGE confirms an expected scenario of stability in economic activity, negatively influenced by the declines in agricultural production, the manufacturing industry, trade and others.

The industry has been suffering negative impacts related to problems in global production chains, which generate scarcity of inputs and, consequently, cost increases – already high due to the devalued exchange rate. The automotive industry, for example, has been producing a volume below demand, generating queues for new cars and inflating the used market. The factors that positively offset the result of the third quarter of this year were some segments of services, driven by the improvement in the epidemiological situation at Covid-19, and construction, which continues to reflect the increase in demand for residential properties.

In relation to the agricultural sector, the rainfall regime well below the average and the frosts explain the crop failures of important crops such as corn, sugarcane and cotton. Much of the sector’s losses are due to these crop problems, but in the third quarter, cattle production was also significantly affected by the imposition of sanitary barriers by the largest importer of the Brazilian product, China. The good news is that growth in the main crops and livestock production is expected for next year. In other words, the prospects for the GDP of the agricultural sector in 2022 are for growth.

In relation to the rest of the economy, we are living in a challenging time. Microeconomic reforms made in recent years can boost investments, especially in the area of ​​infrastructure. These investments should also be boosted by subnational governments, which will have good cash availability in an election year. The segments of services that are more dependent on face-to-face interaction, such as services provided to families, can also contribute to the 2022 result. Although the labor market still shows a poor overall picture, with high unemployment and underutilization, the employed population continues to show uptrend – which is positive for demand.

On the other hand, consumer confidence is at a low and high inflation reduces the purchasing power, especially of the low-income population.

The acceleration of inflation has occurred on a global scale and is putting the world’s main central banks on alert. Consumer inflation was above 6% in October in the United States (in the year-on-year comparison). The producer price index reached 18.4% in Germany and 13.5% in China, on the same basis of comparison. The trend now is for monetary policy in developed and emerging countries to be more conservative, removing the strong stimuli that have been given since the beginning of the pandemic and increasing the cost of borrowing by companies and families.

This change in monetary policy had already started in Brazil and intensified in recent months, due to the persistence of high inflation.

The increase in interest rates discourages consumer credit and productive investments – which tend to be riskier than investments in fixed income. This factor adds to the uncertainties inherent to the election year and the dynamics of the Covid-19 pandemic. The numbers of new cases and deaths caused by Covid-19 are still low in Brazil, but two issues are of concern: the recent increase in the number of cases and hospitalizations in European countries and the new variant of the coronavirus, called omicron.

In short, a problem that seemed to be under control could once again cause damage to the economy, although it is still very difficult to make any projection of the impacts of these issues on Brazil.