Opinion – Samuel Pessôa: Looking forward and backward

Last column of the year. Moment when I take stock of the scenario that I outlined at the end of the previous year (2021) for the one that ends, 2022. And in which I draw the scenario for the year that begins, 2023. I thought that growth would be between 1- 1.5%, that inflation would close at 5.5% and that the exchange rate would appreciate throughout the year.

Growth was twice as high as expected, 3% instead of 1.5%. Inflation should end at around 5.6% and the exchange rate, which at the end of December 2021 ran at R$5.70 per dollar, closes the year at R$5.30.

The positive surprise in economic activity was accompanied by a very strong positive surprise in the labor market. In the last 12 months ending in November, 2.17 million formal jobs were created. The unemployment rate will end the year at around 8%, the lowest since the first quarter of 2015.

There was an inflationary surprise, the Ukraine War, and another disinflationary one, the exemptions promoted by Bolsonaro. Several of them will be correctly reversed in 2023. They were voters. The two surprises canceled each other out and the final number was close to what was expected.

The exchange rate behaved well in line with expectations, with the difference that we expected additional appreciation after the election. Lula’s confrontational speech with the market prevented this other round of appreciation.

For 2023, the international economy should slow down a lot and the price of commodities should fall. As a result, the real will weaken – when commodity prices fall, the exchange rate depreciates – and the terms of trade should fall. The disinflationary forces –commodity price drop, increased idleness in the world economy and loss of income for Brazilian agribusiness– should overcome the inflationary impact of a possible exchange rate devaluation, which is not certain.

The international economy will help the Central Bank to deliver the inflation target of 3% in 2024 and will hinder the Federal Revenue Secretariat to collect. The drop in commodities will negatively affect revenue.

For the domestic economy, there are two scenarios. In the first, Haddad executes less than the space given by the Transition PEC, establishes a fiscal rule that signals a fall in the public debt in a not excessively long horizon and manages to approve some increase in the tax burden.

These three movements will produce a neutral or slightly contractionary fiscal policy and will not hinder the BC in the pursuit of the inflation target. Additionally, they will anchor expectations and may even promote an appreciation of the currency, which may be higher or lower depending on the international scenario. The economy is expected to grow by 1%, inflation will close at around 5%, on its way to the 2024 target, and the Selic downward cycle should begin in the third quarter.

In the negative scenario, Haddad’s efforts to contain spending in 2023, raising the tax burden and establishing a credible fiscal rule fail. The exchange devalues ​​even more, the Central Bank is unable to cut interest rates and may even be forced to raise them. In this negative scenario, growth in 2023 will not be very different from that of the positive scenario. The Selic rate will be higher and so will inflation. The economy will take a hit in 2024.

After starting off on the wrong foot, prioritizing increased spending, Lula scored a goal in politics by building a broader coalition than those in force in the previous PT cycle. In politics, it can be said that there was learning. A step towards being in the positive scenario has been taken.