Analysis: With inflation, low growth and unemployment, Brazil is experiencing stagflation

Stagflation is the situation a country goes through when there is high and persistent inflation, low output growth and high unemployment. This is the current picture of Brazil: double-digit inflation, almost 15 million unemployed, which means 12.6% of the unemployment rate, and a meager GDP growth rate this year (4.6%) as predicted by the Bulletin Central Bank Focus.

This growth only replaces the 3.9% loss in 2020, such that the GDP per capita drops again.

The results of the Quarterly National Accounts released by the IBGE for the third quarter of the year are very bad. First, GDP in the third quarter fell 0.1% compared to the second quarter, and this dropped 0.4% compared to the first quarter, characterizing the stigmatized mark of two consecutive negative quarters, by which some define a technical recession. In fact, the economy remains in recession, as defined by the Codace (Business Cycle Dating Committee) in the first quarter of 2020.

Second, the GDP of these three quarters of this year is practically equal to that of the same 3 quarters of 2019. Of the 12 productive activities measured by the IBGE, 3 (information services, financial institutions and real estate services) were not impacted by the pandemic and even grew . Others (mineral extraction, transformation, construction, transport, other services and public administration) have not recovered from the fall of the pandemic or have values ​​lower than those of 2019.

On the demand side, household and government consumption remains below 2019, while gross fixed capital formation –due to the nationalization of oil platforms– appears above 2019.

The service sector (with a 73% share of GDP) was the first sector impacted by the pandemic. In January 2020, it appears stagnant, and in April and May it presented average monthly rates of -12%. The worst results were: transport (-22%), commerce (-18%), other services (those provided to families, hotels, bars and restaurants, with -23%) and public administration (with significant drops in health and education). This was basically due to the need for social isolation to contain the pandemic due to the high levels of contamination and deaths.

These negative rates progressively reduced and were transformed into high positive rates from March 2021 onwards (except for other services and public administration, which became positive only from April onwards). Just as in the fall, this result is associated with the relaxation of social isolation that allowed the opening of trade, interstate bus and plane travel, the frequency of hotels, restaurants and bars, and the resumption of consultations and surgical interventions in hospitals and public health posts.

The maintenance of the survival of a considerable portion of people thanks to emergency aid should not be overlooked. This survival, which is manifested by the consumption of non-durable goods by families, is already stabilized with the end of aid, such that household consumption will depend on the unemployment rate, inflation and the loss of household purchasing power.

On the employment side, the services sector is responsible for 69% of occupations in the Brazilian economy, with commerce (18%), other services (32%) and public administration (11%) being the main employer activities. These are also the sectors with the greatest contribution to GDP: respectively, 13, 18, and 17%. With the rise in the unemployment rate, which had been declining, albeit timidly, in 2018 and 2019, the trend that reached a maximum level of 14.9% in 2020 and 2021, respectively, was reversed.

We are still in recession and now inflation and unemployment have joined, characterizing stagflation.