Brazil is a rare case of a country with double-digit rates of inflation, interest and unemployment. Among the world’s major economies, only Turkey is experiencing such a situation, according to a survey carried out for the g1 by the Austin Rating rating agency.
Argentina and Russia are also at the top of the rankings of the highest inflation and basic interest rates in the world, but they maintain unemployment below double digits. South Africa and Spain have higher unemployment than Brazil, but much lower inflation and interest rates.
THE survey brings together the most up-to-date data from 23 countries, which represent 81.4% of global GDPin addition to eurozone rates.
Interest, unemployment and inflation rankings — Photo: Arte g1
In Brazil, double-digit rates in the 3 indicators have not been recorded since the 2016 recession. Considering official data since 2012, when the current series of the Continuous National Household Sample Survey (Pnad) began, this triple crown’ only occurred in 4 monthsaccording to Austin.
“These 4 occasions were the only times that there were 2 digits in the three indicators. Now this year it has become recurring”, says Austin Rating’s chief economist, Alex Agostini, author of the survey.
It has already been 8 months in a row with annual inflation above two digits in Brazil, according to the preview of April’s inflation released by the IBGE. The Selic exceeded 10% in February and was raised last Wednesday (4th) to 12.75% per year – the highest level since 2017. The unemployment rate, on the other hand, stood at 11.1% in the 1st quarter and remains at double digits since the end of 2015.
What explains this ‘triple crown’
More than indicating a very bad economic situation in Brazilthe combination of double-digit rates of inflation, interest and unemployment reveals the effects of the successive crises of recent years and the structural problems of the Brazilian economywhich for years has been registering low growth.
“In Brazil, we have a problem that is so chronic, so structural, that the relationship between these variables leaves the technical-economic standard”, says Agostini, noting that Inflation and unemployment tend to have an inverse relationship. That is, when one increases, the other decreases.
The economist explains that, although inflation has become a global problem, driven mainly by the soaring prices of energy and commodities, in countries like the United States it has also been fueled by the situation of practically full employment.
“In the United States, there is income to absorb the high inflation. So it is natural that there is also a higher interest rate. In Brazil, we don’t have a job market to absorb this high inflation and interest rates have to go up to fight this cost inflation”, he observes.
For Sérgio Vale, chief economist at MB Associados, this triple crown is also the result of political instability, the fiscal crisis and the lack of progress in the reform agenda. It’s been eight years in a row of federal government accounts in the red.
“We are paying the price of years of neglect in relation to a good economic policy and also a good policy. We have made some reforms, but reforms that are insistently circumvented. For an emerging country that depends on investment and capital inflows, uncertainty and this political polarization is the worst thing that could happen,” says Vale.
He recalls that, in 2016, the approval of reforms and fiscal adjustment measures such as the creation of a spending ceiling were factors that contributed to the fall of the dollar against the real and to the deceleration of inflation below double digits.
Vale explains that the high level of public sector indebtedness is one of the factors that has kept the dollar at a high level in Brazil and forced a faster and more accentuated increase in the basic interest rate in Brazil, which has regained the leadership of the world ranking of real interest.
“Since fiscal policy has entered the election mode, we depend almost exclusively on the Central Bank to control inflation. Interest is rising much more intensely now, largely because of this”, says the economist, citing the change the spending cap rule and the package of “kindnesses” that has been adopted by President Jair Bolsonaro in search of reelection.
“These are measures that may seem to be positive in the short term, such as a tax reduction, but which have a huge cost up front. It is a high price that we are already paying and will pay even more in the coming years”, he adds.
“Brazil has persistent inflation”, says economist André Perfeito
Persistent inflation, interest rates still up and stagnation
Despite the prospect of a deceleration of inflation in the coming months, the projections for the IPCA closed in the year continue to be revised upwards and the Central Bank itself has already admitted that the inflation target should exceed the government target ceiling for the 2nd year in a row. , which had been set at 3.5% for 2022.
On Friday, Itaú revised its forecast for the IPCA for 2022 from 7.5% to 8.5%, citing higher administered prices such as gasoline and electricity and slower disinflation of goods in the second half of the year. The bank’s estimate for the Selic rate is 13.75% per year, with an extension of the interest rate hike cycle for another two months. As for the unemployment rate, the forecast is 12% by the end of this year.
For Austin, however, there is still a risk that Brazil will end the year with a double-digit rate of inflation, interest and unemployment”. stay in double digits”, says Agostini.
Analysts point out, however, that the worst consequence of this combination is the direct impact on employment and income, and on the pace of recovery of the Brazilian economy.
“We are in stagnation now, but Brazil may even enter a recession as well”, warns the Austin economist, who does not rule out possible retractions in GDP throughout the year, as occurred in the US in the 1st quarter.
The financial market currently estimates a growth in Gross Domestic Product (GDP) of 0.70% in 2022 and 1% in 2023. The IMF makes a slightly better projection, of an advance of 0.80% this year and 1, 4% next year. Even so, the outlook for Brazil remains well below the world average and emerging markets.
Turkey, for example, which has an inflation close to 70% per year, has a forecast of GDP growth of 2.7% in 2022 and 3% in 2023.
“This triple crown situation, with double-digit inflation, interest and unemployment, is a scenario that, to dismantle, will have a high economic cost, which is precisely low growth in a more structural and longer-term way, and with the consequence of maintaining the high unemployment rate for longer”, says Vale.
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