Measuring the Pulse of Economic Activity
The depth of the recession depends on the behavior of the Covid-19 contagion curve, which has not yet flattened. Models like the SIR serve to describe the behavior of contagion but cannot make projections. This requires comparisons with other countries and reveals an extremely vexing situation. Worse still is the attitude of President Bolsonaro, who has been acting to undermine the responsible actions of governors in heeding the recommendations of experts, despite the president’s threatening posturing. Epidemiologists warn that rushed relaxation of social distancing will raise the risk of a second contagion peak that will be higher than the first, which can worsen the economic perspectives. The information on contagion indicates that, regardless of what Bolsonaro wants, the physical distancing will likely extend through the end of the second quarter, when GDP will have contracted by 7% (31% annualized, a figure similar to that of many other countries). The driving force of the recovery before the pandemic was household consumption, but the current rise of unemployment and the steep fall of income, especially among informal workers, have diametrically reversed this force. In this respect, there are estimates – discussed further ahead – that even with the emergency support of R$ 600 for three months to the most vulnerable households, the average income of informal workers will drop by 5% this year. Furthermore, there is no outlook for a reaction from investments, and regarding foreign trade, there is a difference between economic theory and accounting. The latter generates optimism, given the positive contribution to GDP coming from the increase of net exports, but the former indicates that with the global economy contracting, even with the benefit of the weaker real on exports, the greatest contribution of net exports is due to the decrease of imports, a consequence of the contraction of consumption and investments.
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