Low interest rates and pent-up demand made civil construction the locomotive of the Brazilian economy in 2021. It is true that it was a locomotive of a slow and heavy train, but it was still fundamental. Thanks to the 9.7% increase last year, the Brazilian Gross Domestic Product (GDP) grew 4.6% compared to 2020, according to the Brazilian Institute of Geography and Statistics (IBGE).
There are two factors to consider. The first is that the flight of investments from fixed income to safer assets led investors to build more – whether for rent or sale. It is worth remembering that the year started with the basic interest rate at 2% per year (which turned fixed income into a fixed loss, in a scenario of high inflation), and crossed New Year’s Eve at 9.5%. The second is that the basis for comparison is low. Knocked out by the pandemic, the construction market shrank 2.8% in 2020.
The industry, also brought down by Covid and the water crisis in 2020, with factories closed and sales falling sharply, managed to react in 2021 and grow 4.5%. The service sector, the most important in terms of job creation, expanded by 4.7% in the year. Even agribusiness, the great star of economic activity for years, lagged behind and shrank 0.2% from January to December.
Without looking only in the rearview mirror, it can be concluded that the civil construction that saved the economy in 2021 will not save in 2022. This is because the determining factor for this good performance, the basic interest rate, is at 10.75% and it should stay above the double digits for two or three years at best.
The beginning of 2022 is a harbinger of the cooling of the sector. In January, real estate financing with savings resources fell by 13.1% compared to December 2021, according to the Brazilian Association of Real Estate Credit and Savings Entities (Abecip). The entity states that 60,400 properties were financed in January 2022 in terms of acquisition and construction, a result 6.7% lower than that recorded in December last year.
Unfortunately, the Central Bank’s bitter medicine to contain inflation will drag down one of the most important income and employment generating activities. Some of the money that irrigated the proliferation of real estate will go back into fixed income and more profitable options in the short term. If the economy doesn’t find its new locomotives, GDP in 2022 – in a scenario still of a pandemic and with the aggravation of the war in Ukraine – has everything to be a fiasco.
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