Analysis: Economy should have better result since 2014; understand

The Brazilian economy should have the strongest growth this year since 2014, probably something close to 2.6%. Yes, in 2021 the GDP grew by 4.6%, but almost all of that was a recovery from the fall of the first year of the epidemic (when the GDP had decreased by 3.9%): it gets worse. After the Great Recession, between 2017 and 2019, average growth had been 1.4%.

Good?

This year has been one of extraordinary or artificial economic stimulus, whatever you call it. There was the release of the FGTS withdrawal, for example. In this third quarter, there is the payment of the largest Auxílio Brasil, tax reductions and the fall in energy prices (fuels and electricity).

Still, the economy’s growth came in well above the average expectations of private sector economists. Even discounting the effect of government stimulus, growth would be higher than the even more mixed-up average for the years 2017-2019. What else can explain the relative, well relative improvement?

The price of commodities, of the goods we sell to other countries (food, minerals, oil) is high, which increases income, consumption and investment in these sectors and their aggregates. Investment in public works, civil construction, is relevant in this election year in which states and city halls have full cash, otherwise.

In addition, there is still a reopening and recovery of sectors damaged by the epidemic (such as face-to-face services). Transport services are doing well, probably because of commodities (international trade, grains, etc.) and e-commerce, which has gained momentum with the epidemic.

Service sector GDP continues to grow strongly. It is 3.7% above the pre-pandemic level. Total GDP (the entire economy) is 3% above the level at the end of 2019.

The wage bill (the sum of labor earnings) is growing by more than 6% a year, in real terms (disregarding inflation), although the average wage is still at the worst level of the decade, since 2012. The worker is cheaper. Now, there is some deceleration in the pace of hiring, which is still strong.

At the end of the day, there may still be some residual improvement to be explained (the “surprises” of GDP), although growth without “gimmicks” should not be much higher than the 2017-2019 average. Did reforms” help (facilitating private investment, amending labor laws)? It may be a topic of debate, although nothing major should have happened, far from it.

The GDP, the size of the economy (income or production) of this 2022 should be the biggest since 2014, but the GDP per capita (income or production divided by the population) will still be more or less than 2010. In this indicator less imprecise term of “wealth”, we have been standing still for a dozen years, therefore. At the rate of growth for 2022, we would return to the per capita income (GDP) of 2013 and 2014 (the highest in history) only in 2025 or 2026. Thus, we will be permanently poorer.

As for the very short term, last quarter, the results were good. The investment rate stood at 18.7% of GDP, the highest since 2014. Investment rate: how much of the economy’s income, how much of GDP, is earmarked for expanding production capacity.

Domestic demand grew in the quarter, unlike in the first three months of the year. That is, household consumption, government consumption and investment far outweighed the negative effect of imports greater than exports.

If the economy does not grow any more by the end of the year, the GDP of this 2022 will be 2.6% higher than that of 2021 (that is, if the change in GDP quarter over quarter is zero, the economy would still grow that much in the full year). But it is possible that the GDP still had a positive result in this third quarter, growth close to 0.3% (the second quarter growth was 1.2%; the first, 1.1%).

Banks say there was a sign of some slowdown in consumption and credit in August, although July was good. Obvious note: deceleration means slowing down, not that we go backwards. Consumer and business confidence, as measured by the FGV, still had almost general growth in August.

The amazing increase in government revenue, the still strong numbers of jobs, the fiscal stimulus (government spending and tax cuts), the still growing credit and the low level of idleness in the industry indicate that the pace of the economy was going well. until July at least.

At some point, the economy is likely to cool down — expected to grow between nothing and 0.5% in 2023, say “the market” informed guesses. No more government stimulus, commodity prices fall, the world grows less, interest rates have risen _the real basic rate is at the highest level since the 2015 recession.

But if it was expected that the pace would slow down in the second quarter (but it has increased), go to zero in the third quarter (it looks like it won’t be) and that there would be a start of a little recession in the fourth _may not come.

It may be that the situation of the international economy takes points from GDP growth, which is even more difficult to predict. To be sure, the growth forecasts that we have seen since the end of last year were quite wrong.