Goodbye to re-election?

Image: Silvia Faustino Saes
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By PAULO NOGUEIRA BATISTA JR.*

The expectation that the economy could become an important asset for Bolsonaro in his quest for re-election has faded

I venture back into the minefield of economic and political forecasts. The difficulties are notorious. There is a saying, famous on Wall Street: If you have to forecast, do it often (If you have to make predictions, make them often.) In politics, the predictions are even more fearsome. Why do them then? It's not difficult to understand. Today's decisions depend critically on the vision one has of the future, however blurred, however uncertain. Everyone tries, with greater or lesser criteria and success.

Let's go then. It is impressive, dear reader, how the Brazilian prospects have changed in just two or three months. Both for the economy and for politics, with the change in political perspectives reflecting in part the deterioration of the economic horizon for what remains of 2021 and 2022. The decay of the federal government has become more evident.

The economy continues to recover to some extent, it's true. The level of activity has been increasing, with positive effects on tax collection. A GDP growth of around 5% seems feasible in 2021, although it should be noted that the interannual statistics include a carry over expressive, as I mentioned in previous articles. At the margin, that is, Q2021 2020 versus QXNUMX XNUMX, the growth rate will be considerably lower. The increase in GDP over the year will be insignificant, close to zero in per capita terms.

The current pace of economic expansion is not enough to significantly improve the job market. The total unemployed stood at 14,4 million in the second quarter, according to the IBGE. The unemployment rate (open unemployment) was 14,1%, showing some decrease in relation to the record of the first quarter. The level of employment has grown, but its effect on the unemployment rate is partially neutralized by the increase in the participation rate (defined as the ratio between the active population – employed or unemployed looking for work – and the population of working age) . The increase in the participation rate is due, in turn, to the cooling of the pandemic and also to the recovery of the economy, which increases the chances that the job search can be successful.

On the other hand, many of those who have jobs are in the informal sector (40,6%) or underemployed. Underemployment – ​​unemployment due to insufficient hours worked – reached a record 7,5 million people. These are people who would like to work more hours than they currently can. The unemployed due to discouragement, that is, those who would be interested in working, but abandoned the search for not believing in the possibility of obtaining a job, reached 5,6 million. Considering the three forms of unemployment – ​​open unemployment, insufficient hours worked and discouragement – ​​the total number of unemployed or underemployed reached no less than 27,5 million in the second quarter. A tragedy, in short.

What has been happening in terms of economic activity and the labor market in recent months is more or less in line with expectations. There were, however, very negative surprises in other areas. I am referring to higher and persistent inflation and the water and energy crisis. The first is caused, in part, by increases in electricity prices resulting from the drought and the emptying of reservoirs. It is true that inflation and the energy issue were already present as concerns a few months ago. But the government and private agents were taken by surprise by the worsening of these problems. It became clear that there is a risk of energy rationing, even if the government insists on denying it.

The Central Bank is chasing the loss and trying to regain control over inflation, intensifying monetary tightening and raising the basic interest rate more quickly. This should cool down the inflation rate with some lag, but at the price of dropping the GDP growth rate to less than 2% in 2021. Throughout this year, inflation has been eroding real wages, adding to high unemployment, to reduce the wage bill and hinder the resumption of consumption.

To complete the picture of difficulties, the beginning of the second semester brought signs of deterioration in the international economic context, which had been one of the factors driving the recovery of the Brazilian economy. The spread of the delta variant in various parts of the world has shown that the pandemic is far from over, prompting downward revisions to economic growth projections in China, the United States and other important countries. In addition to pointing to a less favorable environment for the Brazilian economy, news of the pandemic abroad also fueled the perception that Brazil still has many risks ahead of it in facing the public health crisis.

For all these reasons, the expectation that the economy could become an important asset for Bolsonaro in his quest for re-election has faded. What seemed plausible and even likely to some – the government’s recovery thanks to the economic factor and the advancement of vaccination – became much more distant. Whoever counted on that has already soaked their beards. All the more so as the government gives repeated demonstrations of ineptitude and weakness in conducting economic policy and its agendas in Congress. The turmoil surrounding the Income Tax reform, the issue of precatorios and the expansion of Bolsa Família, for example, consolidated the perception that the government had lost its way.

Increasingly isolated, Bolsonaro may not even reach the end of his term. The third way has already realized for some time that it is only viable. If he manages to survive, it is more likely that the President of the Republic will arrive at the election worn out and demoralized. This is what can be expected based on the information we have.

In any case, it is worth remembering Keynes's warning: "The expected never happens; it is the unexpected always!” (The expected never happens; it's the unexpected always!”).

*Paulo Nogueira Batista Jr. he holds the Celso Furtado Chair at the College of High Studies at UFRJ. He was vice-president of the New Development Bank, established by the BRICS in Shanghai. Author, among other books, of Brazil doesn't fit in anyone's backyard: backstage of the life of a Brazilian economist in the IMF and the BRICS and other texts on nationalism and our mongrel complex (LeYa)

Extended version of article published in the journal Capital letter on September 03, 2021.

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