RIO – The high shock in the prices of commodities in recent months, with war in ukraine finding a scenario already pressured by the prolonged effects of crisis caused by covid-19, should serve as a boost to Brazil’s economic growth this year, because of exports and their financial effects, but the wind could change in 2023, the first year of the next government. Several economists consider in their medium-term scenarios a loss of breath in the next year.
The “Commodity Markets Outlook”, report released by the world Bankprojects easing in raw material prices in 2023 and 2024, although he highlights that the high price shock caused by the war in Ukraine is the biggest since the two crises in the Petroleum in the 1970s. In World Bank projections, “energy commodities” should experience an average drop in prices of 12.4% in 2023 and 11.9% in 2024. On the other hand, “non-energy commodities” should experience an average decline prices of 8.8% next year and 3.2% in 2024.
In the same vein, report by the Bradesco released last week paints a picture of pressured commodity prices in the short term, but with an expected relief in the medium term. In economists’ accounts Thiago Angelis and Myria Bastwho sign the report, global prices of raw materials measured by the CRB index are on average 35% above the values indicated by the fundamentals of the global economy, such as supply and demand.
Recent scenario revisions cited moderation in commodity prices starting in 2023. Last month, the Itau revised the forecast for economic growth in Brazil in 2022 to 1.0%, from the slight increase of 0.2% previously estimated, but lowered the estimate for 2023 to just 0.2%, compared to 0.5% previously, “considering higher interest rates and the expectation of some drop in commodity prices”.
THE MB Associates made a similar move. It raised this year’s economic growth forecast from zero to 0.5%, but cut the 2023 estimate to 0.5% as well, from the previously projected 1.2%. The expected loss of strength in commodity prices is one of the elements that led the chief economist of MB Associados, Sergio Valeto reduce the projection for next year.
“There are two central elements, one domestic and one external, to justify this weak growth next year, below 1%. The external is weaker growth, an American economy perhaps in recession. This alone would drive commodity prices lower, especially oil and metallic commodities,” said Vale. “In here, we have an interest rate scenario”, added the economist, citing the second central element.
More optimistic, the latest macroeconomic forecast bulletin from the Institute of Applied Economic Research (IPEA)released at the end of March, estimates economic growth of 1.1% in 2022, followed by an advance of 1.7% in 2023. The scenario considers the normalization of commodity prices after the resolution of the conflict in Ukraine, the maintenance of sustainability of the national public debt and the improvement of the covid-19 pandemic, explained Francisco Lunadeputy director of Macroeconomic Studies and Policies at Ipea.
“The short-term 2022 scenario considers the Ukraine war to have an effect (High) on commodity prices. In 2023, we consider that the war will end and return to normality as a reference scenario. Our projection considers commodities with normal prices”, explained Luna.
For the director of Ipea, the expected slowdown in commodity prices fails to leverage producing and exporting segments, but, on the other hand, would allow inflation to converge to the target pursued by the central bank (BC) in 2023, thus making room for reductions in the basic interest rate. IPEA hopes that the Selic remain at 12.75% until the end of 2022, and, from 2023 onwards, be reduced until the end of the year at around 9%.
Following this reasoning, Bráulio Borgessenior economist at LCA Consultants and associate researcher at Brazilian Institute of Economics of Fundação Getulio Vargas (Ibre/FGV), sees a positive balance in the medium term, with a change in the scenario for commodity prices. In the short term, the downward correction in quotations is unfavorable for economic activity, but later on, it can favor growth if it is accompanied by a easing in monetary policy.
“When we consider that the reversal (in the rise of raw material prices) eases monetary policy here, looking at a more distant horizon, if monetary policy is not so tight or starts to be eased, this tends to help activity, although not immediately”, he said.
The economist pointed out that, at the moment, the country’s economic growth is already facing restrictions due to monetary policy, as the Central Bank began to raise interest rates here before other countries, and it did so quickly. Therefore, the deflationary effect of the easing in commodity prices tends to be more important than its withdrawal of momentum for economic activity.
In addition to the loss of momentum due to the accommodation in commodity prices and the effects on national monetary policy, Vale, from MB Associados, highlights a third element, the political scenario ahead of the October general elections. The adversities include both the uncertainties about how the eventual transition will be, in the face of threats of non-recognition of the results of the polls, as well as the framework of the first year of the next term, which will determine “what kind of reforms this next president will eventually achieve or be able to do”.
“The point is that we are maintaining a mediocre growth pattern, which is barely able to restore population growth. That’s the big question. In the Bolsonaro government, if we take the four years, we will have a drop in GDP per capita. It will not even be able to cover the population growth in this period. In fact, it’s actually turning into ‘stagflation’”, said Vale.