The term “growing pains” describes an unwanted side effect (feeling pain) to something positive (growing up). This occurs, according to specialists, due to muscle fatigue that affects children and adolescents (the highest incidence is around 12 years old) after a day of intense physical activity. Returning to activity the next day is normal. The pain goes away and there is nothing to stop the child from running, jumping and having fun. Feeling these pains and not growing, however, indicates that something is wrong.
After a year and a half under the effects of the pandemic, the desire of all who survived, albeit with some discomfort, is to return to life as it was before. Especially in business. If the desire of those who had to stay in seclusion to protect themselves from Covid is now to go back out, travel, shop, like a child playing happily, the bad news is that all this movement that has been repressed will be insufficient to allow the economy jumps or advances fast. This is what the main growth indicators show.
One of them is the Central Bank’s Economic Activity Index (IBC-Br), which the market considers a preview of GDP and on which great expectations always reside. The most recent data refers to May, when there was a drop of 0.43%, frustrating those who expected a rise of 1%. For those who attribute the negative IBC-Br to the explosion in Covid’s cases at the beginning of the year and to the return of the restriction measures, the prospect is bleak. The World Health Organization (WHO) has issued a warning about the risk of the delta variant, which has increased the global number of cases in the last four weeks by 80%. In the US, the average of new daily cases surpassed 100,000 last week, something that hasn’t happened since February 11th.
The external scenario and bad forecasts for global recovery directly impact what may happen to Brazil. That if the problems caused by the government itself were not enough, such as the attempt to impose the printed vote by Bolsonaro and the wear that this threat to the electoral process imposes on the relationship with the Legislative and the Judiciary. Just to stay in the Focus Bulletin, released weekly by the Central Bank, the Brazilian GDP growth forecast for 2022 is 2.1%. For the International Monetary Fund (IMF), the bet is even smaller: 1.9%. Almost nothing for an economy that has been walking sideways for a decade, when it was below all emerging countries. And even worse for those who expected to recover the loss of 4% of 2020 growing at least 5% this year. This growth will not come, but that will not make us immune to pain.
The increase in the basic interest rate, the Selic, from 4.25% to 5.25% last week was defended by the Central Bank as necessary to face “persistent inflation”. In addition to high inflation and interest rates (a measure that has been criticized by entities such as Fiesp), Brazil is facing its worst drought in at least a century. Lack of water has a direct impact on agriculture and energy generation. With lower reservoir levels, electricity production drops and the electricity bill rises. Taps may also run out of water, forcing governments to adopt rationing measures.
Covid-19, which has already killed 560,000 Brazilians, is a tragedy whose dimensions are still difficult to calculate, both from a health and economic point of view. It demands extraordinary government spending while reducing wealth generation. But it’s not just Covid that has caused pain in Brazil. We live in a scenario of difficulties that deteriorate future forecasts. Growing up in these conditions will not be easy.
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