Why GDP grows but a sense of economic malaise persists

The Brazilian economy grew 1.2% in the second quarter of 2022, compared to the previous quarter, above economists’ expectations of a 0.9% increase.

In the annual comparison, the increase in GDP (Gross Domestic Product) was 3.2%, informed the IBGE (Brazilian Institute of Geography and Statistics) this Thursday (1st).

The good performance was widespread among the sectors, with increases registered in industry (2.2%), services (1.3%) and agriculture (0.5%), always in relation to the previous quarter.

For the year 2022 as a whole, economists project a 2.1% increase in Brazilian GDP, well above the 0.3% estimated at the beginning of this year, according to the Central Bank’s Focus bulletin, which gathers economists’ expectations. of the financial market.

Despite these positive numbers, the feeling of malaise regarding the economy persists among Brazilians. And this is not just an impression, there is an indicator to measure this feeling, it’s called the “Misery Index”.

In the second quarter, even with the rise in GDP, the index of economic malaise remained close to the record, driven by inflation and family default, which more than offset the improvements in employment and income in the period.

“This year’s GDP is expected to grow by around 2%, which is not much given what has been lost in recent years”, says João Saboia, professor at the Institute of Economics at UFRJ (Federal University of Rio de Janeiro) .

“And GDP doesn’t work miracles: informality remains high, the income of the poorest continues to be pressured by food inflation and default is at a record. So it’s natural that people are feeling bad in terms of well-being. part of the population”, adds the economist.

Understand why GDP is growing more than expected, but still the economic malaise remains. And how that combination should affect voters’ votes in October.

Why GDP soared in the 2nd quarter

Rodolfo Margato, economist at XP Investimentos, says that three main factors explain the good performance of GDP in the second quarter and in 2022 in general.

“The first factor is the post-pandemic reopening that still generates benefits for the economy, pulling service segments, such as transport and storage, services provided to the family and public services”, lists Margato.

A second point is the recovery of the job market, which has exceeded expectations, says the economist.

Until June, the country opened more than 1.3 million formal jobs, according to data from Caged (General Registry of Employed and Unemployed), and the unemployment rate dropped to 9.3%, the lowest level for the second quarter since 2015, according to the IBGE.

“The last highlight is the short-term fiscal stimulus that has been implemented by the government”, says the XP analyst, citing the almost R$30 billion in extraordinary FGTS withdrawals released in the second quarter and income anticipation measures, such as the payment of the 13th of the retirees in April and the salary bonus at the beginning of the year.

Julia Braga, professor at the Faculty of Economics at UFF (Universidade Federal Fluminense) highlights another important factor for the advancement of the economy in 2022: the rise in commodity prices, driven by the war between Russia and Ukraine.

“Brazil is a major exporter of commodities – oil, agricultural products, metals, iron ore. In general, when there is an increase in these prices like now, which is an increase of the magnitude that happened there in the 1970s, naturally these sectors react to this stimulus”, says Braga, noting that this has a “chain” effect on other activities, such as transport services and investments in capital goods.

Analysts assess, however, that the economy should lose strength in the second half of the year, as a result of the sharp rise in interest rates in Brazil and the slowdown in the global economy.

The loss of pace, however, should be softened by the benefits package approved by the government on the eve of the election, including the Auxílio Brasil of R$600, gas vouchers, aid for taxi and truck drivers and tax cuts to reduce inflation.

But then why does the economic malaise persist?

Professor João Saboia, from UFRJ, explains that the Misery Index is a good way of understanding Brazilians’ malaise with the economy.

Traditionally, this indicator is calculated taking into account two factors that have much more weight than GDP in people’s well-being: inflation and the unemployment rate.

But Saboia, together with economist João Hallak, from Corecon-RJ (Regional Economic Council of Rio de Janeiro), developed a new version of the index taking into account four indicators:

• inflation;
• labor market underutilization rate – which, in addition to unemployment, considers who is working fewer hours than they would like, and who could work, but is not looking for a job for some reason;
• average income of the population;
• and default rate.

From there, economists arrive at a number that varies from 0 to 100. The higher, the greater the economic malaise of the population.

In the second quarter of this year, the index was at 75.9, the fourth worst result recorded by the indicator since 2012, the beginning of the historical series. And very close to the record 80.9 recorded in the fourth quarter of 2021.

For comparison, in the fourth quarter of 2019, before the start of the pandemic, the Misery Index was at 40.5. At the end of 2014, before the crisis that would hit the country the following year, the indicator reached its minimum: 14.7.

In other words: even with the recent rise in GDP, the economic malaise remains considerable. And inflation and household indebtedness are the two main factors behind this, according to Saboia.

Inflation, default, informality and stagnant income

By reducing fuel taxes, the federal government managed to reduce inflation in July. But this is barely felt by the poorest part of the population for two reasons: the persistence of high inflation for many months and the rise in food prices.

In July, even with the IPCA (Broad Consumer Price Index) down 0.68% in the month, inflation accumulated in 12 months remained above 10% and the rise in foodstuffs reached almost 15%, with items staples such as potatoes (67%), milk (66%) and coffee (58%) with even more significant price changes in the period of one year.

With inflation eating away at household incomes, they were less able to meet financial commitments. As a result, both the percentage of indebted families (78%) and families with overdue debts (29%) are at a record level, according to the most recent data from Peic (Indebtedness and Consumer Default Survey).

Saboia also cites the increase in the number of informal workers in the labor market.

“There is a certain hype on the part of the government, saying that the job market is doing very well. But many of the jobs created are informal. On the one hand, this is good, because the unemployment rate is lower and people are getting some way to be absorbed in the job market, but many of them are being absorbed in a precarious way”, says the UFRJ professor.

Julia Braga, from UFF, also highlights the weakness of income, which despite a slight improvement in July, remains very close to the level of ten years ago.

“The recent increase in employment is associated with a low income, eroded by inflation in 2021 and the first half of 2022. At a level of R$2,700, the average income of Brazilian workers is similar to that of ten years ago, it is practically stagnant “, observes the teacher.

“All this has an impact on people’s well-being, because the population continues to grow and the new jobs that are being generated are low-income. In addition, there is no policy to value the minimum wage and there is a worsening in the distribution income. So it’s an economic growth that doesn’t affect the entire population, which is clear with the increase in hunger.”

And how does all this affect the election?

So we have on one side: rising GDP, falling unemployment and R$ 600 in aid.

And on the other: persistent food inflation, record debt and number of informal workers, and income stagnant at the level of ten years ago.

With the October elections approaching, the inevitable question is: what is the effect of this combination of factors on the voter vote?

“If I could summarize the effect of the economy on the 2022 electoral framework, I would say the following: it maintains the viability and competitiveness of the reelection candidacy [de Jair Bolsonaro]but it doesn’t bring a feeling of natural continuity to the majority of the electorate”, says Rafael Cortez, political scientist and partner at Tendência Consultoria.

“Although there are some indicators of the dynamism of economic activity, there are some characteristics of this recovery – which are a relevant weight of informality and a still challenging inflationary scenario – that maintain a sense of vulnerability, which results in high rejection of the government and a feeling of change in an election year. It is not by chance that ex-president Lula systematically appears at the forefront of the polls.”

Cortez notes that the improvement in the economy has been instrumental in narrowing the gap between the two candidates, but believes that a turnaround would depend on the government’s campaign being able to reverse Bolsonaro’s personal rejection, which has factors beyond the economy, such as the difficulty of president with the female electorate and the performance in the pandemic.

He also highlights that the recovery of the economy is very recent and this is one of the factors for the government’s desire to take the election to the second round.

“This improvement in the economy is practically a new fact in the campaign. But the perception of this by the people is a slow process, which takes time, it is not by chance that the government makes a relevant effort for a second round, because it needs time for this improvement in indicators becomes a political fact.”

This text was originally published here.