Anuário da Indústria de Implementos Rodoviários 2022

36 After two years of global economic turbulence caused by the Covid-19 pandemic, with a sharp fall in business in 2020 and a strong recovery in 2021 after vaccination, the Brazilian economy is beginning to get back to normal, but the outlook is bleak. For 2022, analysts expect instability and stagnation, fueled by rising inflation, driving up interest rates and eating away at purchasing power. The pandemic still threatens and destabilizes production chains around the world, but to a lesser degree. In Brazil, it is the political risk created by elections that aggravate the scenario, with the promise of added volatility in financial assets causing surprises. “Elections in Brazil have a lot of potential to create instability, leading to capital flight that could push the exchange rate quickly up to R$ 7.00, causing inflationary shocks, high interest rates, and eroding income. The biggest risk is the contamination of an already shaky economy and GDP growth below expectations, which are already not good,” says economist Tereza Fernandez, of macroeconomic analysis consultancy MB Associados, responsible for economic advisory at Fenabrave, an association that represents vehicle dealers. Weak economy - Brazil’s GDP fell by 4.1% in 2020, rose by 4.5% in 2021 – just enough to recover some of the losses – and now the average projections point to stagnation in 2022, with a shrinking of the economy also being forecast now. “The first half of 2021 was good, but in the third and fourth quarters we saw that the recovery lost traction with high inflation (IPCA 10% in 2021) and the hike in the basic interest rate (Selic up from 2% at the end of 2020 to 10.75% in February), which has hit the economy hard. Growth is impossible in 2022,” says Pedro Renault, vice president of economic research at Itaú BBA, which forecasts GDP of 0.5% this year. Itaú BBA says industry, which is always more sensitive to a weak economy, is expected to close 2022 with shrinkage of 2.4%. The service sector will shrink by 0.2%. “It has shrunk a lot in the last two years, picked up as the pandemic stabilized, but is suffering from the erosion of income and falling demand,” says Renault. Agribusiness is the only sector that continues to grow in Brazil, because it depends more on exports than on the domestic market. Itaú BBA expects an increase of 1.3% in agricultural GDP, offsetting part of the decline of other economic sectors. But also this percentage could be better, around 5%, without the problem of drought that hit the South and parts of the Southeast and Midwest, generating important losses in the harvest of grains and other agricultural products. “Interest, employment and credit go against growth. Agribusiness is only left, because the foreign market follows buyers, especially China, even at a lower speed. Even so, high prices of international agricultural commodities, drought and supply problems are factors that put pressure on inflation in here,” says Tereza Fernandez. Runaway inflation - Runaway inflation in 2021 was sparked in 2020 by the rise in wholesale prices, with industrial input prices up by 50%. The IPCA annual inflation rate rose from 4% at the end of 2020 to 10.4% in January 2022. As inflationary pressures take time to ease, the IPCA rate is expected to be more than 5.4% by the end of 2022. The main inflationary factor is fuel, responsible for almost half the IPCA rate, driven by oil prices, with the us dollar always above R$ 5.00, and reaching R$ 6.00. Both factors continue to put pressure on prices. Oil could go over $100 this year because of the global increase in consumption and Russia’s invasion of Ukraine. Political instability in Brazil could see the dollar reach more than R$ 6.00, adding to inflationary pressure. Interest up, GDP down - Most analyst, including Itaú BBA and MB Associados, say that to contain inflation at around 5% this year, the Central Bank has to raise interest rates (Selic) to close to 12% by May, and stop there. However, if volatility worsens, the Central Bank may increase Selic to over 13%, which has the potential to reduce GDP by nearly 1%. “Imbalances in production chains caused by the pandemic since 2020 have increased inflationary pressure worldwide, so growth stimuli are no longer the same. The global economy is expected to grow in 2022, but with large differences between developed and emerging countries, which have less economic power. In the United States [to contain inflation of 7% in 2021] the Fed should raise interest rates from 1% to 2% by the end of this year. It’s not a handbrake on the economy like it is here,” says Renault. Brazil’s interest rates, the highest real rate in the world, are depressing the economy, crushing demand, and increasing unemployment, which at the end of 2021 reached 12.4 million people, or 11.6% of the working population. Much to consider Inflation, falling income, and presidential elections rock the economy ECONOMIA | ECONOMY | ECONOMÍA