Synthesis of the Brazilian Economy

BRAZIL ECONOMICS - Report 01 Nov 2021 by Affonso Pastore, Cristina Pinotti and Paula Magalhães

The news about the evolution of the pandemic in Brazil continues to be upbeat: the seven-day moving average of the number of deaths is stable at around 300, and 74% of the population has received at least one vaccine dose, while 55% have completed the immunization cycle. However, there are big differences among states. At one extreme is São Paulo, with 80.5% having received one dose (and 67.5% with complete immunization), and at the other is Amapá, with 55.2% having received one dose (and 30% with full vaccination). Overall, 15 states are in the range of 70% or more of the population receiving the first dose. Based on this situation, the restrictions on the functioning of the service sector are being abolished or relaxed, and hybrid work systems have started to be tested. The uncertainty about the duration of immunity assured by the vaccines makes future policies a matter of trial and error, and it is impossible to rule out some setbacks along the way.

The congressional investigation (CPI) of the Covid reaction has reached the end, uncovering a dramatic picture of bumbling by the federal government in managing the pandemic, including irregular use of public funds and charlatanism, among other ills. The political and investigative developments will last for various months, keeping the pressure on the Bolsonaro clan and their minions. The impacts of high inflation and unemployment have sent the president’s approval ratings plummeting, jeopardizing his reelection chances. The attempt to renew the emergency relief program, like a Trojan horse used to break through the spending ceiling, was disastrous: by undermining the credibility of the fiscal anchor, it raised the risk of national insolvency, triggering devaluation of the real and feeding inflation, which is already in two-digit territory. The Central Bank now will have to accelerate the increases of the SELIC rate to re-anchor expectations, which will inevitably reduce economic growth. The net effect is particularly aggravating the situation of lower income households.

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