Opinion – Vinicius Torres Freire: Can war improve Brazil’s economy in the short term?

The war in Ukraine tends to benefit the growth of the Brazilian economy in the very short term —​say, until the end of the year. The argument zanza about ten days ago by conjuncture reports written by economists of banks.

Nor is it a new argument: rising commodity prices are usually associated with greater growth in Brazil. The country exports oil, grains, ore and meat.

How big is the improvement? A few tenths of a percentage. Enough for the country not to end the year in the red, with a shrinking GDP.

Inflation will be higher, apart from miracles. The people will continue to be flayed and the average real wage will hardly rise (an abstraction, to be sure, but a synthetic measure of the general harshness). The crisis will weigh heavily next year, with higher interest rates (because of higher inflation). In short, the political effect for those in power tends to be from none to negative (for a while, GDP can grow and the people continue to be flayed).

Projections for economic growth in 2022 have been revised — they are often very wrong at this time of year, but that’s what we have. Other factors also prompted revisions.

The GDP at the end of last year was better than expected. Governments are spending. The federal government reduces taxes and will release a good amount of money from the FGTS, for example. There are increases in civil servants’ salaries in the states and municipalities, which should also increase investment expenditure, as it is an election year and the cashiers are full.

To help, the dollar price has been falling since January, for various reasons (commodity prices, high interest rates, financial assets with a value of xepa, we will not have a recession in the strict sense, etc.).

The conflict does not affect Brazil directly, it is said, because direct economic relations with countries sunk in the mud of war are small (unless fertilizer supplies run out). The war also has its negative weight because world economic growth will be lower, particularly in Europe.

Still, the “benefit” argument of war has some problems. What effects of the war are we dealing with? Are they all mapped? Do you know the size of the European slowdown?

There is still no prospect of an end to the conflict. Even if there is a ceasefire or an armistice, the economic changes caused by the geopolitical crisis will continue to simmer (regionalization of trade, protectionism, problems in the international supply chain, insecurity, uncertainty).

War can still have explosive damaging effects on the world trade in energy, food and metals. From what size of inflationary shock does the increase in commodity prices not break our legs?

Hard to know, because no one sane will guess the fate of the war and possible sanctions and trade disruptions to come. There is little agreement even on what the interest rate will be in Brazil in two or three months, a matter here in our village. For some banks, the Selic is no more than 12.75%. For others, it goes to 13.75%. We have no idea, as usual, what the exchange rate will be. From February 2020 to December 2021, the dollar was 30% more expensive, a brutal shock. Since December, it has fallen by almost 11% (comparisons based on month averages).

In short, improvement can be a pittance and the stakes are enormous. Far more important is whether there will be a national agreement to deal with the disaster from 2023 onwards. For now, we see candidates just digging into nonsense.