The Risk of Recession in 2022
In a recent interview, Paulo Pichetti, a member of CODACE, stated there is no way to classify the small declines of GDP in the second (-0.4%) and third (-0.1%) quarters of 2021 as a recession. Among the reasons, he mentioned the noise introduced in the seasonal patterns (not yet captured by the relevant econometric software) by the successive shocks caused by the pandemic, and the impossibility of distinguishing whether the economy has entered a new cyclical pattern or the extension of an existing cycle.
But he did not hesitate to acknowledge that the Brazilian economy has been stagnant, as indicated by the GDP results in the two previous quarters and corroborated by the most recent data pointing to a weak fourth quarter, leading to a negative carry-over to 2022. Thus, the country is entering the new year with a stagnant economy, facing the effects of a highly restrictive monetary policy along with a slowdown of global growth (less intense than observed in Brazil), but also provoked by the removal of economic stimuli with the aim of controlling inflation. Additionally, consideration must go to the uncertain economic effects of the new Omicron variant.
Although in Brazil, the fiscal impulse at the start of 2022 is still positive, the income transfers will be similar to last year, but together with the effects of inflation will further corrode the purchasing power of households, with negative effects on consumption. In our last Quarterly Outlook we projected GDP growth of 4.9% in 2021, which we now have reduced to 4.7%. For 2022, we projected contraction of 0.5% in GDP, which we maintain so far, but with bias toward a worse result.
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