Second wave of Covid-19 and slow vaccination lead economists to predict recession

SÃO PAULO – The peak of the second wave of the pandemic is further lowering expectations for the economy this year. At the moment when the daily average of deaths by Covid-19 exceeds 3 thousand deaths, more economists are predicting a new recession at the beginning of the year, with two consecutive quarters of decrease of the Gross Domestic Product (GDP).

The economic reaction this year and in 2022 will not be enough for the country to recover from the Covid-19 recession. Only in 2023 would the country return to pre-crisis levels.

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– Given the evolution of the pandemic and the slow pace of vaccination, the country is likely to experience a technical recession in the first half. As long as the health crisis is not resolved, there will be no robust recovery – says Adriano Laureno, senior economist at Prospectiva Consultoria.

Carlos Kawall, director of ASA Investments, says that the resurgence of the pandemic in March canceled out the good moment of January and February, even with the end of the emergency aid. He estimates a 0.5% drop in GDP in the first quarter compared to the end of the year and a further drop of 2% in the second quarter.

He predicts that the GDP of 2021 will grow by 2.3% and 1.5% in 2022. The combined result of the two years will not compensate for the 4.1% drop in GDP in 2020:

– There is no clear scenario for pandemic control, there are delays in vaccines. Even in countries that are vaccinating faster, such as Chile, the United Kingdom and the USA, it is estimated that it is necessary to widen the distance for a longer time – says Kawall, remembering that among the most relevant emerging countries, Brazil is the only one to have the expansion 2021 revised downwards.

The pandemic affects business and increases uncertainty, inhibiting the consumption of families and companies. In the Focus survey, carried out by the Central Bank with financial institutions, the forecast for GDP fell four weeks ago. Today it is 3.18%. Sílvia Matos, coordinator of the Bulletin Macro Ibre / FGV, classifies the situation in the country as “a catastrophe”:

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– If the country did not grow at all this year, but maintained the pace of activity in December, we would have a 3.6% increase in GDP, the so-called statistical load. But our forecast is already at 3.2%. The country is slowing down.

Enrico Cozzolino, an analyst at Banco Daycoval, says measures are lacking to resolve this economic downturn:

– It would be a good moment for a strong signal that the reforms (administrative and tax) would be advancing. But there is no climate, nor political coalition, to continue with this agenda.

More risks

Fiscal risk, with public debt reaching 90% of GDP, doubts about the viability of the Budget approved by Congress, inflation rising, expected to exceed 7% in 12 months, rising interest rates, political uncertainties and institutional threats worsen the situation, recalls Sérgio Vale, from MB Associados, which also expects a recession in the first half and a 2.6% rise in GDP this year:

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– We have the political risk of a government that has not worked for two years. Nobody expected us to reach 4,000 dead a day.

. Photo: O Globo Creation
. Photo: O Globo Creation

Fernando Honorato Barbosa, chief economist at Bradesco, has a more optimistic view:

– The pandemic has a certain cycle, we saw this in Amazonas, in the United Kingdom, in the USA. After you hit a peak, isolation measures are taken and the transmission drops. I think that in the second half of April we will have much better data on hospital admissions. This should favor the resumption, at a time when we should be accelerating the vaccination.

Santander economist Lucas Maynard explains that the bank last week raised its growth forecast for 2021, from 2.9% to 3%, due to the absorption of the best result in the fourth quarter of 2020 and the January figures.

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In the first quarter, the institution expects an increase of 0.2% in relation to the previous quarter and a fall of 0.6% in the second quarter, but it does not remove the risk of recession:

– This debate about technical recession in the first semester remains open. A change of 0.2% positive or 0.2% negative in the first quarter is entirely feasible. In fact, we see GDP stable in the first quarter of the year.

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