Analysis: GDP returns to 2019 size, but household consumption and income per head lag behind

The Brazilian economy recovered what it lost in 2020, the year of the epidemic’s recession. I mean, the size of production or income, of GDP (Gross Domestic Product), is a little bigger than in 2019, 0.56%, to be precise. But when you take into account the size of the population, which has increased, there is still a setback from the year before the Covid explosion.

This means that the per capita income (GDP) is lower than in 2019. Worse still, the level of household consumption has receded much further — it is still at a level similar to that of 2018, which was already bad. It is one of the reasons for the worsening social malaise — or rather, an explanation in numbers of this malaise.

This sadness was already felt in the flesh by most Brazilians and was already insinuated in salary statistics. The mass of earnings from work fell from 2020 to 2021. The jobs that appear are mostly bad, insecure, precarious and pay little. High inflation did the rest of the job, eating up purchasing power.

Projections for this year are no better. According to economists from Bradesco’s Department of Economic Research and Studies, the salary mass should drop another 1% this year. The inflation rate will still be very high until the middle of the year (9% per year), the number of people employed will grow little and wages, on average, are expected to fall by more than 3%.

GDP growth is expected to be sluggish because of the sharp rise in interest rates, uncertainty due to the election and now because of the effects of the war in Ukraine.

In this environment of insecurity, of lack of perspective, of high interest rates, companies must play the game, suspending investments, which were the source of growth in 2021. On the positive side, the price of goods that Brazil exports, commodities (about 70 % of sales) is on the rise; state governments will spend more (with more investment and salary adjustments for employees); the government cut tax on industry, maybe do some more tax favors (fuel subsidy or other, with debt increase).

Bradesco’s staff, even optimistic, on average, forecast a 0.5% increase in GDP in 2022. In the average of private forecasts compiled by the Central Bank (in the Focus Bulletin), the forecast is for an increase of 0.3% of GDP . It’s practically nothing; in per capita terms, another setback. GDP per capita in 2021 was still about 7.7% lower than in 2013, the last year before the series of disasters.

If household consumption did not follow GDP, where did this growth in 2021 come from?

Investment, expenditure on new production facilities, houses, machines, equipment, software. The investment rate in 2021 was the highest since 2014, before the recessionary disaster (investment rate: how much of GDP was devoted to increasing productive capacity). However, that number seems a little inflated by statistical technicalities. Still, it wasn’t weak.

GDP grew by 4.6% in 2021 (down by 3.9% in 2020). In the last quarter of last year, it increased by 0.5% compared to the previous quarter (July to September). It was even better than expected and interrupted two straight quarters of decline. But it’s obviously not a big deal (it’s a little thing).

If, by the end of 2022, the economy continues to produce at the same pace as at the end of 2021, GDP will be 0.3% higher (that is, 2022 growth will be 0.3% if there is no quarterly growth to another in 2022). Taking into account a population growth of 0.7%, it means that, on average, we are going to become impoverished again or, in practice, to remain more or less the same.

It is also necessary to remember that the economy, the GDP, only recovered what it lost in 2020 and another tick. It did not recover what it stopped growing in the 2020-21 biennium. That is, what would have grown in these two years if the recent trend had continued.

How to know “what would have grown”? It’s kind of a reasonable guess, an informed guess. After the great recession of 2015-2016, the economy was growing at about 1.5% a year until the epidemic. It was little, but much better than another horrible recession. In short, the balance of the 2020 slump and the 2021 recovery is still negative — GDP could be at least 2.5% higher than it was in 2019.

If the GDP starts to grow 2.5% per year from 2023, only in 2027 will the per capita income return to the level of 2013. It is an unprecedented disaster in the history of the Republic. For it to be mitigated, there would have to be very deep and rapid changes in the Brazilian economy. The disposition for such a revolution does not seem to be in sight.