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Scenario suggests stagflation scenario for 2022, says former World Bank director

The announcement of a 0.1% decline in GDP for the third quarter of 2021 and expectations for 2022 create a situation that, for economist Carlos Braga, former director of the World Bank and professor at Fundação Dom Cabral, suggests a scenario of “ stagflation” of the Brazilian economy.

The analysis was made by Braga in an interview with CNN this Thursday (2), in which the economist pointed out a set of measures that generate “uncertainty” as one of the factors for such a forecast.

“There is legal uncertainty about the debate on the PEC of Precatório, the liability law and the tax ceiling. All of this is also starting to put pressure on interest rates – the instrument that the Central Bank has is the increase in the Selic, which is currently at 7.75% and the market is betting that it will reach 9.25%”, he said.

“While these measures open up fiscal space, they create pressures in terms of the cost of debt. We have to continue to pay attention to inflationary pressures – one instrument is the interest rate, but this creates a likely environment of stagflation.”

For Carlos Braga, the measures that are being taken in order to enable, in official discourse, the financing of programs such as Auxílio Brasil, generate long-term consequences that are difficult to assess.

“This is starting to have an effect on the cost of carrying debt, it creates space, in the short term, for measures that meet social needs, but we are creating a cocktail that requires anti-inflationary measures, otherwise we will return to the pre-Plan world Real”, he declared.

Fourth quarter will not benefit from the foreign market

In the first quarter of the year, GDP – which represents the sum of all the country’s wealth – grew by 1.2%. In the following period, it had a drop of 0.4%, according to a review released by the institute. Previously, the fall registered from April to June was 0.1%.

The main impact on the result came from the 8% drop in agriculture, highlights the IBGE, and also the 9.8% drop in exports of goods and services. The industry — which corresponds to 20% of GDP — remained stable. Services, on the other hand, increased by 1.1% in the period. The sector accounts for more than 70% of the national GDP.

For the fourth quarter, there is also the “China effect”, said Carlos Braga, citing the suspensions implemented by the country to beef imports from Brazil.

“Bovine exports from Brazil to China dropped 49% in November. This isn’t in the third quarter, it’s going to show up in the fourth. There are factors beyond our control, but if economic partners make these decisions, it won’t help. The fourth quarter will not be much favored by the international trade situation either”, said the economist.

Health Uncertainties and “Anemic GDP”

Another source of uncertainty for the economy is the global public health situation, especially after the arrival of the new variant of the coronavirus, Ômicron, in the pandemic scenario.

In the most positive scenario, the high levels of vaccination in Brazil will slow down the impacts of Ômicron in a possible resurgence of Covid-19 in the country, opined Braga.

However, this does not mean a more optimistic scenario for 2022 – at least if the government does not transmit messages of this kind.

“If this message comes with measures that affect legal security, such as the default for the PEC dos Precatórios, this has a cost, and this cost will start to be paid in 2022”, he declared.

Estimates point to 2022 without necessarily having an “inflation”, he pondered, but with a growth in the order of 0.58%, which the former director of the World Bank defines as “a number much lower than what the government would like to see. to have”.

“You can’t deny the reality of the IBGE numbers. At this point, they suggest a technical recession. Most likely, we will have an increase in consumption in the first and second quarters, which will create a positive effort on the demand side, and with that, better numbers”, he said.

The scenario for the third and fourth quarters, however, can already be affected by the uncertainties of the current moment.

“On the other hand, I don’t expect inflation to drop dramatically. We will continue with anemic growth and high inflation for the post-Real Plan period”, said Carlos Braga.

*With information from Lígia Tuon, from CNN Brasil Business

Reference: CNN Brasil

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