Sunday, April 11, 2021

Vaccine uncertainty and fiscal risk delay economic recovery in 2021 – Prime Time Zone

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Lack of government ability to deal with health and economic crises pressures growth expectations down after 4.1% drop last year

Pilar Olivares / ReutersIn a year marked by the Covid-19 pandemic and stagnation in the global economy, Brazil’s GDP fell 4.1% in 2020

The embarrassment of the federal government in dealing with new coronavirus pandemic and with the worsening of the fiscal crisis are the main threats to the resumption of economy in 2021, despite the statistical load driven by the increase of 3.2% of the Gross Domestic Product (GDP) in the last quarter of last year. The two vectors are already beginning to put pressure on the optimism of analysts, who are seeing less robust data than at the beginning of the year. Economists and entities consulted by the Central Bank estimate growth of 3.3% in 2021, according to the Focus Bulletin released on Monday, 1st. A month ago, the projection showed an increase of 3.5%. The account of the lack of ability to consolidate the pace of immunization should already be charged in this first quarter with the retraction of activities in comparison with the previous period. The lethargy in mass vaccination amid the worst moment of the pandemic risks expanding the negative performance for the months of April, May and June, leading Brazil again to a technical recession, a phenomenon that characterizes two consecutive quarters of economic contraction. The risk of uncontrolled public debt started to show again at the end of January, when the increase in the numbers of infected and killed by the Covid-19 began to pressure the government for the resumption of emergency aid. The new spending without fundamental pillars to sustain cyclical growth, such as the reform and privatization agendas, increases the perception of the political class’s irresponsibility with the public coffers.

Analysts heard by Young pan point out how the economic and health crises feed on each other. The need for increased spending to halt the spread of the pandemic, which in turn is compounded by the federal government’s failure to provide vaccines – and by the president’s actions Jair Bolsonaro (without a party) that health experts classify as denialists – is an example. The correlation between these two fronts is also exposed with the lack of coordination of the reform agenda and how it creates a scenario for the erosion of economic activity. Without emergency aid, the financial crisis forces people to leave home to seek some source of income, further contributing to the advancement of Covid-19. Regardless of the situation, the result hampers the country’s ability to recover after falling 4.1% of GDP recorded last year. “It can even be celebrated that the drop came much less than expected six months ago. But, unfortunately, what we see in the political area, both with the pandemic and in the fiscal crisis, goes in the direction of bringing down GDP in 2021. Celebrating the results in this context is looking at the rear view mirror with serious clouds in front ”, says Carlos Kawall, director of ASA Investments and former secretary of the National Treasury. For the economist, the scenario without high expectations gives room for growth between 2% and 2.5% in 2021.

Alexandre Schwartsman, economic consultant and former director of the Central Bank, projects GDP growth to be around 2.8% to 3.2%, driven by the above-expected boost registered in the fourth quarter of last year. Despite the positive number, the analyst is emphatic in stating that the principle for any recovery plan is the massive immunization of Brazilians. “Without resolving the health issue, it will not resolve the economic issue,” he says. The callsigns issued so far, however, do not point in this direction. Data from the Our World in Data website, linked to the University of Oxford, show that, just over two and a half months between the start of vaccination in the country, on January 17, until this Thursday, 4, only 4.5% of the population has been immunized. “The view is terrible. We basically have two vaccines, which are ok, but there are a lot of problems with logistics. How long will it take to vaccinate 100% of the population? If it doesn’t speed up, it won’t solve the problem, ”says Schwartsman.

In the fiscal field, the fear is represented by the resumption of emergency aid without austerity measures being endorsed by the Congress. A Proposed Emergency Constitution Amendment (PEC), which opens space in the budget for the benefit, will be debated by the Chamber of Deputies next Wednesday, 10, after going through the Senate last week. Despite being dehydrated with the withdrawal of points that could reduce the pressure on public spending in the short term, such as the deindexation of mandatory spending on health and education, the approval of the text, with triggers for cost reduction and the R $ limit 44 billion for emergency aid, can be considered a victory for the federal government. The Executive is waiting for the PEC to be approved also by the deputies before publishing the provisional measure that authorizes the resumption of the aid. The expectation is that the new rounds will be R $ 250 for most beneficiaries and R $ 375 for women responsible for the domestic budget. The first installment is expected to be distributed later this month, with payments scheduled until June for 44 million Brazilians. Last year, the benefit consumed more than R $ 320 billion, with the distribution of installments ranging from R $ 300 to R $ 1,200, for approximately 67 million people.

For Kawall, the benefit must undergo a recalibration due to the lack of space for public costs. “It cannot be on the same basis as last year, when it was poorly focused, excessive and led to an increase in public indebtedness. We no longer have the breath to repeat this ”, he says. In addition to these changes at the end, the ex-secretary of the National Treasury defends the parallel forwarding of texts that bring more fiscal security. “We need to move forward with structural reforms, in particular those that reinforce the triggers. Unfortunately, the signs go in this direction, ”he says. The lack of preparation and the urgency of approving the aid at the moment when several States decree lockdown to slow the rate of contamination, it generates a new front of uncertainties that could have been avoided. “It was something that should have been discussed months ago. As it was not done, we will have to swallow what will come out of a discussion that has no rationality ”, says Schwartsman. “Congress is going to propose something, the president will want to surf. It is not the right way to deal with the problem, and without this technical support it becomes a war for those who give more. ”

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