The black swan: the coronavirus’ impact on the brazilian economy

Maria Bondareva is a student at the Moscow State Institute of International Relations (MGIMO) and has carried out the Erasmus Program at ISCSP.

With this article I intend to share my research conclusions regarding the impact of the pandemic on the brazilian economy.

First, we must look on the situation preceding the coronavirus. In 2020, Brazil had not yet recovered from the 2014-2016 economic crisis, in which it was revealed the inefficiency and lack of relevance of Brazil’s socioeconomic system. In the decade before the crisis, in the years 2003-2013, the world economic conditions were as favorable as possible, with very high commodity prices and with China asserting itself as the growing destination for brazilian exports. However, in 2014 prices fell, the global economy slowed down, integration processes like MERCOSUR almost came to a halt, transnational corporations like Petrobras became less attractive to investment, due to corruption scandals and in the USA, Donald Trump was elected. For these reasons, since 2014 the Brazilian economy has been in a deep recession, and to end this situation it is necessary to carry out structural reforms in the economy. This requires prolonged external stability, but coronavirus has interrupted this process.

In the year 2020, Brazil’s GDP fell 5,3%. Yet, the prospects look better for this year, with predictions that the GDP might grow 3,2%. In that case, only in 2024 would Brazil be capable of reaching 2014s production levels, which represents a lost decade.

The coronavirus affected the labor market and increased the unemployment rate to 14,7%. The national currency devalued a lot and remained 23% cheaper than the dollar. The reason for this is the massive capital flight out of the country, because Brazil became less attractive to investors. This was the result of the social policy of the state. Brazil implemented support programs for citizens and companies. In total, the resources Brazil channeled to social assistance were around 10% of GDP. Therefore, public debt increased to 93% of GDP, which was a decisive factor for capital’s move.

Since the second, and more intensely, the third trimester of last year, Brazil began the process of economic recovery. Some sectors have already achieved the performance they had before the pandemic, but more vulnerable and important industries like the metallurgical and automotive industries still lag. This leads one to think that economic recovery is very heterogenous and requires time.

For the year 2021, Brazil has to seek out economic development that is more sustainable and to ensure this it is necessary to conclude the fiscal consolidation, that is, to more rigidly regulate the balance between budget expenditures and income, cut social support programs, develop infrastructure to attract investment, and more importantly, reduce the state’s intervention in the economy, better entrepreneurship and undertake liberal reforms.

Be the first to comment on "The black swan: the coronavirus’ impact on the brazilian economy"

Leave a comment

Your email address will not be published.