Economy shows more signs of worsening – 06/08/2021 – Vinicius Torres Freire

Not much was given to retail sales in April, released this Tuesday (8) by the IBGE: they grew beyond almost everyone’s account. Yes, commerce has been faltering since December, with the drought of emergency aid and the horrendous peaks of the epidemic. April would have another casualty, for the same reasons, it was expected, as recorded in these columns. Only no.

Tax revenue, quarterly GDP and trade performed better than expected. In the bowels of these indicators there are ugly things: inflation helps fatten up tax collections, household consumption in GDP has fallen. Still, there were significant slumps.

The formal employment indicator of Itaú economists increased in May. The employed population grew 5.5%, returning to the level prior to the epidemic.

Before moving on to the bad news, it is worth remembering other relevant downfalls. Longer-term interest rates (more than two years) in the wholesale of money are falling. After taking a tranquilizer in mid-April, the dollar price relaxed even more, returning to R$ 5. The most important ingredient of this tranquilizer was the end of the turmoil in the American financial market, with a few higher interest rates for here and signs that the spending ceiling would not collapse.

The summary of the first act of this opera is: 1) the real economy did not sink under the slaughter and restrictions of March and April; 2) there was a relief in financial conditions; 3) the owners of the big money think that the Brazilian fiscal gambiarra is tolerable or, at least, they put an end to the craze of the first quarter and, finally: 4) it is still reasonable to believe that the GDP will grow 5% this year.

A 5% growth this 2021 only brings GDP to the same average level as 2019. That is, to an economy still depressed by the 2015-2016 recession. Even worse, it will be an economy with fewer jobs and poisoned by the effects of inflation on the income, of the poorest in particular. But the decline and relief in relation to the year the epidemic fell, 2020, will be relevant, albeit unequal.

Yes, there are risks that we will go to vinegar, increasing from 2022 on.

The most obvious threat is that of an even more murderous spike in the epidemic. However, without appearing a more pestilent variant, the epidemic tends to cool off throughout the rest of the year, given the growing number of vaccinated and infected (in theory immunized). As Jair Bolsonaro wanted, the epidemic will end with death and death, without our having one day controlled it.

There is some risk of a power outage, punctually, in November. With a few steps, it is possible to prevent breakdowns. If there is inertia, the mere perception of the increased risk of blackouts can be a problem. That’s for 2021. As for 2022, let’s depend on the rain that should fall between November and April.

There is huge inflation in wholesale prices (the IPA has gone up to almost 50% in the last 12 months). It is not clear how much of this will be passed on to consumer prices (IPCA). If the IPCA scarcity does not subside as of June, the prospect of higher interest rates could sabotage part of the 2022 growth, which would already be shabby.

Finally, Americans are busy debating whether their inflation will return (at a mere 2.5% a year). If you think so, there may be some sort of buzz from the end of the year, with higher interest rates and the end of monetary relaxation. Such a turnaround in the US could hurt us or even break our legs. In 2013, something similar shook the finances here and was one of the factors of the downfall.​

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