The Brazilian economy resumed growth in 2021, as the Brazilian Institute of Geography and Statistics (IBGE) showed on Friday (4). The increase in Gross Domestic Product (GDP) was 4.6% compared to the previous year. The number is good, according to bank analysts. But is it enough to indicate a resumption? Not so much, they say. The year 2021 was marked by the increase in vaccination of Brazilians and the recovery of activity, strongly shaken by the Covid-19 pandemic in 2020.
But it was also the year of the return of interest rate hikes to 10.75% and inflation to 10%. The two old acquaintances of Brazilians end up putting even more pressure on the population’s income. In addition, experts from banks and brokerage firms emphasize that unemployment has not declined, remaining at 13.2% in the last year. All these ingredients do not help to think about a real recovery for 2022.
The year was going well. In the financial markets, foreign investors have invaded our beach. The flow of international investors on the stock exchange until February represented 90% of what was observed in the entire year of 2021, according to the chief economist at Veedha Investimentos, Camila Abdelmalack. “For the stock market, what drew attention were commodities. The 10.75% interest rate attracted capital to fixed income,” she said. All this together and mixed together helped to flood the market with the dollar, bringing the US dollar down to R$5 in February. “But this is money that comes and goes quickly, according to Brazil’s perception of risk.”
The increase in international tension, caused by Russia’s invasion of Ukraine, added to the upcoming electoral process in Brazil, greatly cloud the economic scenario. “Everyone is trying to predict how the conflict will influence economic activity, but it’s still too early to know,” he said. The increase in commodity and energy prices gives certainty that inflation will remain strong, not only in Brazil but throughout the world. In the United States, the rise in prices in January alone reached 7.5%, the biggest increase in 40 years. Now, expectations turn to the Federal Reserve (Fed, the American central bank), to know what measures will be taken to try to curb inflation. If you raise interest rates, the most direct route to controlling inflation, speculative capital can start to flow back there.
“Here, we will try to detect the impact that the deceleration of the European economy, closely linked to our economy, will have on our trade balance”, said Camila. For the economist, the difficulties of the Russian economy may not affect Brazil as much, although agribusiness faces problems with the lack of fertilizers. “But in fact, our big trading partners are the United States and China.”
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