Brazil has the prospect of the worst economic growth among Latin American countries for this year, according to the most recent survey released by the Getúlio Vargas Foundation (FGV), and the scenario could deteriorate even further with the war in Ukraine.
If it continues, the conflict in Eastern Europe, which started last week, could have a direct impact on Brazil’s Gross Domestic Product (GDP) throughout 2022.
Among the consequences for the population are the possibility of a rise in the price of food, fuel and exchange rate instability.
FGV’s survey for the first quarter of 2022 found a deterioration in the economic climate in Brazil.
The indicator dropped 2.8 points, from 63.4 to 60.6 points at the beginning of this year, when compared to the last three months of 2021.
As a result, the country accumulates the lowest rate among Latin American nations, according to the survey that heard 160 experts spread across 15 different countries.
Regarding the current situation of the economy, Brazil recorded the worst drop between the fourth quarter of 2021 and the first of 2022, going from 54.5 to 15.4 points.
The country had growth only in relation to the expectations indicator, which rose 42.7 points and reached 115.4. It is worth noting that performance is considered positive when it is above 100 points.
“Brazil stands out negatively among the countries with the worst GDP growth projections. Worsening domestic macroeconomic conditions and the political environment were some of the main factors cited for the weaker forecasts this quarter,” highlights the FGV report.
And the country is still awaiting the effects of the war in Ukraine. More than 10,000 kilometers away, Brazil could suffer direct consequences from the conflict, according to Professor Joelson Sampaio, one of those responsible for the FGV’s Latin American Economic Survey.
The first is related to the possibility of an increase in the price of oil in the coming days. Brent barrels ended last week at $105, the highest level since 2014.
“Fuel is interconnected with all economic activities in the country, either very presently or indirectly. Brazil uses road transport predominantly, so the price of all products depends on how much diesel and gasoline cost”, recalls Sampaio.
Another aspect of the Brazilian economy that could be impacted by the war is the price of food. Russia and Ukraine are among the world’s top wheat producers.
“This war causes a supply shock. The fear of scarcity of products scares the economic market, this brings uncertainty that increases inflation and capital flight to countries that are more economically secure. […] This affects the world market, through a reduction in supply. And Brazil is within this negative scenario”, explained Joelson Sampaio.
The third factor by which the crisis between Russia and Ukraine may impact the Brazilian economy will be through the exchange rate. The dollar closed Friday (25) at R$5.15 after the occupation of Ukrainian cities by Russian troops. For now, the fall recorded in the US currency at the beginning of 2022 holds the effects on the real, a situation that may change with the prolongation of the conflict.
Finally, the war in Ukraine could lead to an increase in interest rates in Brazil. This should happen if the dollar continues to rise and inflation does not subside. The result may be a new assessment of the Selic by the Central Bank.
The most recent edition of the Focus bulletin, a weekly survey of financial institutions released by the Central Bank, signals inflation of 5.56% and a rise of 0.3% for GDP in 2022.
Source: CNN Brasil
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