Opinion – Samuel Pessôa: Pandemic does not seem to have left major marks on the functioning of the global economy

In April, the IMF discloses its scenario of the world economy for the coming years. The scenario of the year will be updated next October. The table presents, for three time intervals and for different groups of countries, what has happened since the beginning of the century and what will happen until 2027.

In that period, we had two major global economic crises. The Great Global Financial Crisis (GCFG), produced by the failure of American banks due to mortgage defaults in the USA; and the economic crisis produced by the pandemic.

In the first row of the table we see how the crises affected the growth of the world economy. In the period known as “the great moderation”, from 2000 to 2007, the world economy grew by 4.5% per year. After the GCFG, the world grew by 3.3%, 1.2 percentage points below the previous period’s growth.

The good performance in great moderation apparently had some degree of artificiality. The world economy has never been able to resume that pace again.

In contrast, the economic crisis produced by the pandemic does not seem to have left major marks on the functioning of the economy. If between 2008 and 2019 the global economy grew by 3.3% per year, according to the IMF projection, between 2020 and 2027 (based on 2019, the year prior to the time interval considered), the growth will be 2.9% , only 0.4 percentage point (pp) lower.

Half of the 0.4 pp deceleration is due to the 3 pp reduction in China’s growth (8% from 2008 to 2019 compared to 4.9% for the period 2020 to 2027). As the Chinese economy on average represented around 15% of the world economy, a 3 pp drop takes 0.2 pp off the world’s growth. China’s slowdown is natural in an economy whose growth is due less to the growth of the manufacturing industry and more to that of services.

The 0.2 pp additional drop, according to the IMF, is due to the worsening performance of emerging economies, mainly Europe and sub-Saharan Africa. For Latin America, the IMF does not see a major deceleration for the period 2020 to 2027 compared to the previous period. Our region’s biggest loss of performance was after the GCFG.

When we look at advanced economies, the IMF projects for the period between 2020 and 2027 a slight acceleration compared to 2008-19, from 1.4% per year to 1.6%.

As we have argued in the column, the epidemic crisis is the result of an external shock to the functioning of the economy and, therefore, will not leave a permanent mark on economic activity.

For the Brazilian economy, the deterioration is marked. We grew, between 2000 and 2007, 3.6% per year. In the following period, from 2008 to 2019, we grew 1.6% and, according to the IMF, we will run at 1.4% from 2020 to 2027.

I never considered that our good performance in the 2000s was due to the positive shock of raw material prices. They helped a lot in public revenue, as we have seen, in fact, in the most recent period.

But our acceleration in growth in the 2000s was, in my interpretation, due to a lot of housecleaning we did between 1998 and 2005. The IMF scenario is not a condemnation. If we manage to understand each other and build a viable social contract, as we did between 1999 and 2007, we might be surprised by the IMF’s pessimism about us.