Out-of-control pandemic hinders growth and requires more public spending | economy

Although Brazil has shown a rate of recovery similar to that of the large economies, the The volume of stimulus and government aid here was far greater than that disbursed by emerging and even developed countries to combat the coronavirus..

The government’s response to the crisis helped prevent an even bigger downturn in the economy in 2020 and guaranteed some relief for businesses and workers who suddenly found themselves without income. But, from the sanitary aspect, Brazil appears as the second country with the highest number of deaths from Covid-19 in the world and the third in number of confirmed cases, according to the Johns Hopkins University tracking.

“Precisely because the pandemic is being fought so badly in Brazil from a health point of view, this is forcing a stronger reaction in terms of public spending intervention.. So it is a bit misleading result. The GDP ended up falling less here because it has this artificial stimulant ”, says Fernando Veloso, researcher at the Ibre / FGV.

In the economist’s evaluation, as aid programs are closed, the consequences of ineffectiveness in fighting the pandemic on the path to recovery of the Brazilian economy will become more evident.

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“Inefficiency will come at a high price. Not right now, but next year because there is no way to extend all this aid, and with this bad fight of the pandemic, the labor market will not recover well either.. The unemployment rate is already rising, informality must also return strongly, so this prevents other economic mechanisms, especially private investment, from replacing the emergency aid that will end ”, he says.

The public spending announced to combat the effects of the pandemic has already totaled R $ 615 billion, according to the National Treasury. A Central Bank survey, based on data from the IMF (International Monetary Fund), shows that the direct fiscal stimulus measures announced in Brazil are equivalent to 9.4% of GDP, twice the average for emerging countries and only lower than those of the countries. such as Japan (16.2% of GDP), Canada (12.4%) and the United States (12.2%). See the chart below:

For the economist Sergio Vale, from Consultoria MB Associados, given the volume of spending to boost the economy, an even stronger recovery than that observed in Brazil would be desirable, where only a part of the sectors eliminated the losses of the most acute phase of the pandemic. The services sector, which has the largest share of GDP and the one that employs the most, continues to be seriously affected, mainly due to the fact that it groups together activities that are typically agglomerated and that depend on the control of the pandemic to return to normality.

“The recovery observed in the GDP of all countries in the third quarter, with significant figures, was not very different from the result of Brazil. The fact is that, given that we put this truck with monetary and fiscal resources, perhaps it would have had an even more impressive, even stronger recovery, ”he says.

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The economist also recalls that, here, the relaxation of restrictions and social isolation has occurred faster than that observed in other countries.

“Actually, there was no blockade as we saw happen in Europe, we did not stop completely. We should also note that our quarantine was much more fragile. Could it be that if Brazil had made a more aggressive blockade than one? fallen much more and would we be talking about much worse figures?

Lost lives and second wave of Covid-19

Although Europe is going through a second wave of Covid-19, the greater rigor and efficiency in combating the pandemic back there guaranteed not only a rapid recovery of part of the losses of the 2nd quarter but also a reduction in the number of deaths and contamination.

“Outside, the confinement was severe and the control of the pandemic worked. Surely the studies will show that we allowed many lives to be lost due to a poorly done confinement at the beginning,” criticizes Vale.

“This half of the way we had there in July, August, with figures still very strong, daily averages of a thousand deaths, maybe that could have been avoided. We could possibly be entering a second wave now, but with the prospect that will come soon. . Front that now comes from a vaccine. We could have saved, saved many lives in that period if we had done something more aggressive, “he continues.

In the opinion of analysts, the worsening fiscal situation and the pandemic still out of control here also hamper the prospects for a sustainable recovery of the Brazilian economy.

The assessment is that the pace of recovery will slow down significantly in the fourth quarter, with the reduction in emergency aid, accelerating inflation, uncertainties related to the recovery of the labor market and doubts about the government’s ability to move forward with the structural reform agenda. Congress.

“The concern now is how the fourth quarter will be, with less emergency aid and the pandemic returning. We will probably have a December with people increasingly restricted,” says Vale.

According to Paloma Anós Casero, World Bank director for Brazil, high government spending on fiscal stimulus helped contain the country’s poverty rate amid the crisis. However, the challenge for 2021 is to deal with the effects of a second wave of Covid-19 and the difficulties in distributing the vaccine around the world.

“The fiscal stimulus has greatly increased the public deficit. It is necessary to maintain the momentum of structural economic reforms to increase per capita income and maintain the country’s growth,” says Paloma.

The financial institution’s estimates point to a public deficit of 93.5% of Brazilian GDP in 2020, the highest among the BRICs (a group made up of Brazil, Russia, India, China and South Africa). In 2019, this percentage was 75.8%. In India, debt is expected to reach 90.4% of GDP, while in China, the projection is 52.4%.

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Despite the promising news about Covid-19 vaccines, analysts also say that the need to extend the stimulus until early 2021 cannot be ruled out for now.

“There is already a debate around that. The government does not recognize it, but there are already parliamentarians proposing it, “says Veloso.” The more ineffective the fight against the pandemic, the more it will hamper next year’s growth, “he adds.

Juliana Inhasz, Insper’s economic coordinator, agrees with Veloso on the need to extend the stimulus and highlights the “difficult fiscal inheritance” that Brazil will carry in 2021:

“We must break through 2021 with a higher deficit and debt outlook, and the government with little room to cut. Taking that into account, [governo] it will have to find a way to finance itself or it will further complicate public accounts and damage its credibility in the market ”, analyzes the economist.