World Bank cuts Brazil’s GDP forecast and sees worse performance among major emerging markets

The World Bank reduced the growth forecast for the Brazilian economy in 2022 from the 2.5% estimated in June last year to 1.4%, according to a report released this Tuesday (11).

This is the lowest growth rate among the 18 emerging countries whose projections were highlighted by the institution. Considering 28 economies in Latin America and the Caribbean, Brazil should only surpass Haiti, for which stagnation is projected.

The figures are part of the Global Economic Outlook document.

For the World Bank, global growth is expected to slow sharply, from 5.5% growth in 2021 to 4.1% in 2022 and 3.2% in 2023, as pent-up demand during the pandemic dissipates and fiscal support and monetary is reduced worldwide. In 2020, world GDP (Gross Domestic Product) fell by 3.4%.

By 2023, all advanced economies will have achieved full recovery from the economic crisis generated by the pandemic. Emerging and developing companies will remain 4% below the previous trend, according to the institution. One explanation is that many emerging and developing economies are phasing out supportive policies to contain inflationary pressures well before recovery is achieved.

Brazil, which once again stood out for its high inflation and interest rates, for example, will be below the world growth average in the period, according to the institution’s projections. After falling 3.9% in 2020, Brazilian GDP is expected to grow, respectively, by 4.9%, 1.4% and 2.7% in the following three years, from 2021 to 2023.

The estimates for Brazil made by the World Bank are higher than those made by the Central Bank of Brazil, of 4.4% in 2021 and 1% in 2022. The projections of the BC Focus survey with analysts show growth of 4.5% and 0.28%, respectively.

“The Brazilian economy is expected to slow to 1.4% in 2022, thanks to weak investor sentiment, erosion of purchasing power due to high inflation, macroeconomic policy restrictions, reduced demand from China, and falling prices. iron ore prices”, says the report in its annex on Latin America and the Caribbean.

According to the institution, growth in the countries of this region should slow down from an estimated 6.7% last year to 2.6% this year. The movement is attributed to restrictions in monetary and fiscal policies, the still slow improvement in labor market conditions and less favorable external conditions for these countries.

According to the bank, by 2023 the region will lose ground in per capita income relative to advanced economies as well as emerging economies in Asia and Europe.

For the World Bank, after a strong recovery in 2021, the global economy is entering a sharp slowdown amid threats from new variants of Covid-19 and rising inflation, indebtedness and income inequality. These factors could jeopardize the recovery of emerging and developing economies.

The rapid advance of the omicron variant, the bank says, indicates that the pandemic is likely to continue to affect economic activity in the medium term. In addition, a notable slowdown in major economies, including the United States and China, will impact external demand in emerging and developing economies.

“The world economy is simultaneously facing Covid-19, inflation and political uncertainties, with public spending and monetary policies in as yet uncharted territory. Rising inequality and security-related challenges are especially damaging to developing countries.” said David Malpass, president of the World Bank.

“Putting more countries on a favorable growth path requires coordinated international action and a comprehensive set of national policies in response.”

The report features a section on Covid’s impact on global inequality. The assessment is that the pandemic has increased global income inequality, partially reversing the decline that had been achieved over the past two decades.

The pandemic has also caused inequality to increase in many other spheres of human activity, such as access to education and health care and the labor market, which were greater for women and informal and low-skilled workers.

“This trend has the potential to leave lasting marks: for example, losses of human capital caused by disruptions to education can span generations,” the report says.