Opinion – Samuel Pessôa: Two years of epidemic

The IBGE released on Friday (4) the result of the activity in the fourth quarter of 2021. The economy ran 1.6% above the same quarter of 2020 and grew 0.5% in relation to the third quarter. Result slightly above what the market expected. There will be a slight revision to the better of the estimates for growth in 2022. The FGV Ibre team, led by economist Silvia Matos, did well and nailed the result.

It’s helpful to look at the fourth quarter of last year compared to the same period in 2019, the last quarter before the epidemic hits here. The economy rotated 0.5% up. Given that the growth trend observed in the three-year period from 2017 to 2019 was just under 1.5% per year, we should be, in the fourth quarter of 2021, 3% above the same period in 2019. In other words, we were in the fourth quarter of 2021. quarter of 2021, 2.5 percentage points below the pre-epidemic trend.

Three sectors rotated below the levels observed before the epidemic: manufacturing, other services and public administration services. The industry has suffered a lot from the lack of inputs and logistics problems in general. It still appears that the drop towards the end of last year is due more to a shortage of supply than a lack of aggregate demand. However, this finding should cease to be valid throughout 2022, with the lagged effects of rising interest rates on demand.

In the fourth quarter of 2021, the item “other services”, that is, entertainment, food outside the home and personal services, was 1.4% lower than in the same period in 2019. Public administration services, on the other hand, were 1.7% lower .

FGV Ibre’s scenario for 2022 is for growth of 0.6%. My scenario is a little more optimistic. I work with expansion in the house of 1% to 1.5%.

The statistical loading from 2021 to 2022 will be 0.3%. There is still a lot of growth for us to return to the trend before the epidemic and, additionally, fiscal policy will be strongly expansionist, both for the Union and for the states and municipalities. We have to remember that in 2022 there are elections and the cash of states and municipalities in December 2021 was around 2% of GDP. This box will be consumed. On the other hand, contractionary monetary policy will reduce growth. The result should be slightly more than 1% growth.

In this conjunctural analysis column, we have to deal with the exchange rate. Between mid-December and now, the exchange rate appreciated by just under R$0.75 per dollar. This strengthening of the currency is the result of the rising price of commodities. As we are commodity exporters, whenever they rise in price in the international market, our currency strengthens, and vice versa.

This mechanism ceased to function between May 2020 and November 2021. As of December, the seesaw between exchange and commodities was normalized. It is for this reason that the outbreak of war between Ukraine and Russia did not have much impact on the real. The rise in commodity prices paid off. We have to remember that, in 2021, the trade balance of oil and its derivatives had a surplus of US$ 20 billion.

The war shock recalls the 1970s: after a very strong supply shock, the tripling of the oil price in the 1970s and now the shocks caused by Covid, we have a new shock, the second oil shock, from 1979 and, today , the war. The difference is that back in the 1970s we were oil importers and now we are exporters.

For these reasons, I think that the war will not have any appreciable impact on growth, despite making the inflationary scenario a little worse. To see whether or not there will be reflections on monetary policy. Too early to know.