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The IMF improves its forecast for Brazil this year, but predicts a slow recovery in 2021

A man carries a bag of food distributed by an NGO in a favela in Rio de Janeiro last June.AMANDA PEROBELLI / Reuters

The update of the macroeconomic table of the International Monetary Fund (IMF) shows a less pessimistic forecast for Brazil than in its last update, back in June: the South American country’s economy will decline this year less than expected. The agency now foresees a 5.8% drop in 2020, compared to the 9.1% predicted in the previous July report. However, the recovery is expected to be slower than expected: for 2021, the projection is now a 2.8% advance, up from 3.6% previously. The specific forecasts for Brazil had been published at the beginning of the month in a separate report, but now they have been expanded and inserted within the global context.

The figures show a better face of Brazil than the rest of Latin America, whose projection by the IMF is a decrease of 8.1% for this year. Venezuela, Peru, Argentina and Ecuador are the countries that lower this average the most, with falls of 25%, 13.9%, 11.8% and 11% respectively. However, in the Fund’s projection, the recovery of the continent next year (+ 3.6%) will be better than in Brazil. Like the rest of the world, the South American giant lost control of the economy in the face of the pandemic, especially with the closure of companies in the service sector with confinements. However, it protected the industrial activities of staple products and exports, secured credit for large companies and guaranteed emergency aid to the most vulnerable population. Measures that mitigated the steepest decline, although at the cost of a public deficit that rose to 9% of GDP. Aid to informal workers of 600 reais (91 euros) for six months, from March to August, boosted the retail trade and reduced the economic downturn.

The IMF sees in the “unprecedented” fiscal, monetary and regulatory responses, such as aid packages for the population and businesses, the key factor to avoid a collapse similar to that of the “financial catastrophe of 2008 and 2009”. However, to avoid further setbacks, especially in the case of an increase in the number of cases, the multilateral sees “it necessary for the incentives to continue for longer.”

Therein lies the dilemma of the economic team of the Brazilian Minister of Economy, Paulo Guedes. The government of Jair Bolsonaro is showing lack of unity in explaining what formula it will adopt to fill the huge void in public accounts due to this expansive emergency policy. At the same time, it is under pressure to maintain emergency aid to the most vulnerable until the country returns to a virtuous cycle. The Executive has reduced the aid to 300 reais (54 dollars or 46 euros) for the September-December period. What will happen the day after is the great doubt.

“It was one of the states that spent the most in Latin America and is experiencing one of the largest increases in public debt this year,” Samuel Pessôa, a researcher at the Department of Applied Economics at the Getulio Vargas Foundation (FGV) study center, told the agency Eph. One of the most recent macroeconomic reports of the FGV, signed by the economists Fernando Castelar and Silvia Matos, the current fiscal picture of Brazil “scares” and will require juggling next year.

There are, however, signs of improvement at a time when the pandemic appears to lose some of its breath, with the median death tipping down. Some States, such as São Paulo, the engine of the economy, are entering the green phase, the penultimate of the pandemic restrictions, and resuming commercial activity. Unemployment, which currently affects 13.3 million Brazilians, showed signs in September that it is beginning to decline and in last week’s Focus survey, which includes the opinion of a hundred financial institutions, predicts a rebound of 3, 6% in 2021, down from a 5% drop this year.