The world is threatened by a recession – unemployment, less production and consumption, and declining economic activity. Economists say the likelihood of this crisis happening in the largest economies on the planet has increased in recent weeks. According to them, this is because the USA and Europe raise interest rates against inflation and the risk that the war in Ukraine will affect energy supplies to countries on the European continent. And all this will spread to Brazil.
Economists point out that the economic downturn in the world’s largest economies, affecting Brazil’s exports, should occur between the end of this year and the first half of 2023.
For now, there is a longer, short-term – two to three-quarters risk of a recession in Europe than in the US. If it does, the Brazilian economy will slow, but not recession, says economist Rogério Studart, senior fellow at the Center for Political Economy in Jabri (Brazil Center for International Relations) and former managing director of the World Bank and the Inter-American Bank. development.
But if the recession in the United States, and especially in Europe, becomes more severe, the risk that China will also be affected increases. In this case, Brazil could enter a recession.
There is a stagnation in order for the coming year. The war in Ukraine has exacerbated the bottlenecks in the world economy, now hitting key inputs like energy and triggering even stronger inflation. In the absence of coordinated economic policy actions since the pandemic, the task of reducing inflation by raising interest rates has been placed on the shoulders of central banks.
rogerio studart
Technical recession and de facto recession
Technical recession occurs when a country’s GDP changes negatively for two consecutive quarters. A recession actually occurs when a country’s basic economic indicators such as unemployment, population income, corporate income, investments worsen.
Three main causes of recession
1) Interest: High rates cool the economy because they discourage consumption, make loans more expensive, and make it harder for companies to develop projects. For the first time since 2018, the Federal Reserve (Fed, the central bank of the United States) began raising interest rates and accelerated that increase last week. The measure serves to regain control of record inflation of 8.6%.
Fed simulations point to the risk of a 50% rise in interest rates pushing the country into recession. The projection is shared by Bank of America, Goldman Sachs, and American banks such as Dreyfus and Mellon.
The Bank of England (BOE) has also raised interest rates in the UK to the highest level since 2009. And the European Central Bank (ECB) has not yet started raising interest rates, but has warned that the process has begun. It can be accelerated in July or even September.
2) The energy crisis in Europe: The war in Ukraine threatens Europe’s energy supply. Russia is the world’s main exporter and second largest natural gas producer, constituting the relevant shares of this energy source for major economies such as Germany (49%), Italy (46%) and France (24%).
Russia has already begun to cut off energy supplies to European customers. This means constraints on production and household consumption in industries, says economist Paulo Dutra, professor of international economics and international trade expert and coordinator of the FAAP Economics course.
The risk of a recession is on the radar and is not small, especially in Europe, where the probability is higher in terms of duration and intensity. Higher price and lower energy supply affect consumption and production in the economy, which in turn reduces activity.
Paulo Dutra, FAAP Economics course coordinator
3) Covid in China: The increase in the number of covid-19 cases in China, which took restriction measures in important cities, caused a slowdown in the economy.
Scenario of tightening monetary policies [aumento de juros] Slowing activity in developed countries and China increased the likelihood of the global economy entering a recession.
José Márcio Camargo, chief economist of Genial Investmentos
Greater influence in Europe than in the USA
Economists say the recession will be stronger and longer in Europe because the countries of the region will be affected by two effects at once – interest rates and energy.
Adauto Lima, chief economist of Western Asset’s Brazilian division, a global executive that manages $449, says US, European Union and UK central banks’ rate hikes should lead to a synchronized global slowdown. billion dollar investment.
The risks of recession are greater in Europe because of the more severe energy shock than in the continent’s self-sufficient United States.
Adauto Lima
In addition to less exposure to an energy shock, the US economy is entering a healthier interest rate cycle than Europe’s. The GDP of the United States fell less than that of the eurozone in 2020 and grew more in 2021.
Change of GDP during the pandemic years
- United States of America: -3.4% in 2020 and +5.7% in 2021
- European Union: -6.3% in 2020 and +5.4% in 2021
- Chinese: +2.2% in 2020 and +8.1% in 2021
- Brazil: -4.1% in 2020 and +4.6% in 2021
At a time when American families have the reserves they have accumulated in recent years, for example, to consume and borrow to buy real estate, the Fed has to limit demand. There will be a recession as interest rates rise, but it should not be a decline.
rogerio studart
Impact in Brazil
He said that if this expectation of a rapid slowdown in the US is confirmed, the impact of the recession in the US and European economies on developing countries such as Brazil should be mild. UOL.
The recession here, if it does happen, will be smaller than developed countries, especially since we already had a strong slowdown last year. We will feel less of the effects of this international scenario as we are already going through a period of great slowdown.
Pedro Raffy Vartanian, professor at Mackenzie Presbyterian University
For now, economists’ projections for the Central Bank Boletim Focus point to growth for Brazilian GDP: 1.2 percent this year and 0.76 percent in 2023.
decline in exports
Brazil will be affected by the recession in rich countries due to exports. In the first quarter of this year, they accounted for about 19% of GDP.
If the countries that buy the most from Brazil go into recession, either Brazilian exporters will sell less or the price of their products will fall.
Top buying countries from Brazil in 2021
- Chinese: USD 87.7 billion (31.28%)
- United States of America: USD 31.1 billion (11.1%)
- Argentina: USD 11.9 billion (4.2%)
- Holland: 9.3 billion USD (3.3%)
- Chile: USD 6.9 billion (2.5%)
- Singapore: USD 5.9 billion (2.1%)
- Mexican: USD 5.6 billion (1.9%)
- South Korea: USD 5.5 billion (1.9%)
- Japan: USD 5.5 billion (1.9%)
- Spain: USD 5.4 billion (1.9%)
Source: Ministry of Economy, Foreign Trade Secretariat
The biggest danger for Brazil comes from China
If the economic crisis hits China, the biggest importer of Brazilian products, Brazil could suffer a bigger drop in a global recession.
A stronger slowdown there will affect our primary sector immediately, but then the rest of the population will suffer as well as less money circulates in the economy with less exports.
Paulo Dutra, FAAP Economics course coordinator
The Asian giant will also buy less from its suppliers if the recession in the US and Europe affects demand for Chinese exports at a time when the country is still living with lockdown measures. A possibility that has already caused price differentials in raw materials such as ores and grains.
In recent years, China’s growth has helped emerging commodity exporters get through periods of recession. But the strength of the Chinese economy today is less with lower growth rates. As a result, a stronger slowdown in the richest countries tends to affect developing countries like Brazil more.
Adauto Lima
source: Noticias
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