Brazil’s GDP to grow 5.2% in 2021; more positive view about services – FGV Ibre

RIO DE JANEIRO, BRAZIL – Due to the pandemic improvement in the country, which brings a more positive view about services, the FGV Ibre’s projections team raised the estimate for the expansion of the Gross Domestic Product (GDP) in 2021, from 4.8% to 5.2%.

Industry should no longer be the engine of growth. Still, other sectors will fill this space, assessed the Brazilian Institute of Economics of the Getulio Vargas Foundation (FGV Ibre).

The seasonally adjusted projection of a 0.1% increase between the first and second quarters was maintained. However, the composition expected for the recovery now has greater participation of the tertiary sector, points out the Institute in the July edition of the Macro Bulletin, anticipated to Valor.

In the opening of the bulletin, Armando Castelar, coordinator of Applied Economics at FGV Ibre, and Silvia Matos, the technical coordinator of the document, state that the economy is in a new cycle of “moderate optimism” at the beginning of the second semester, tempered by doubts about the extent of the recovery and the speed with which pre-pandemic bottlenecks will reappear.

As the Covid-19 outbreak is controlled, there should be a broader reopening of the economy, Castelar and Silvia point out, with the gradual removal of restrictions on circulation. This process will intensify the reaction of the labor market, they evaluate.

On the negative side, they ponder that “the devastating effects” of the crisis, such as higher indebtedness, tend to limit the increase in consumption. At the same time, the industry will no longer have such an exuberant performance.

After rising 1.6% in the last quarter of 2020 and 0.7% in the first three months of 2021, the FGV Ibre estimates that industrial GDP fell 1.8% from April to June. The only sub-sector with positive behavior in the period should be mineral extraction, increasing 2.5%. On the other hand, the transformation industry should shrink by 2.1%, and the construction industry 0.7%.

Even with the percentage of companies in the sector that still report insufficient stocks compared to the historical average before the pandemic, industrial activity should decrease in the short term due to the increase in production costs and the lack of some inputs, assess Silvia and researchers Marina Garrido and Mayara Santiago in the economic activity section of the bulletin. On average for the year, the industrial GDP is expected to grow 4.8%.

For FGV Ibre, the difficulty in obtaining inputs and raw materials should not be solved so soon. Within the Manufacturing Industry Survey of June, the sum of entrepreneurs who stated that the situation should only normalize in 2022 and cannot foresee a normalization reached 43.3%.

The reheating in services should lead to a recomposition of prices in the sector in a context of already pressured inflation. In the inflation section of the bulletin, researcher André Braz estimates that the National Wide Consumer Price Index (IPCA) will rise 7.2% in 2021 – well above the target ceiling of 5.25% and the market consensus projection, at

More than half of the industrial companies (52.4%) pointed out that they continued to face component shortage problems last month, which they relate to the lack of the product, both in the domestic and foreign market or to the increase in prices abroad.

According to FGV Ibre calculations, the GDP of services rose 0.9% in the three months ending in June and will end in 2021 with an advance of 5%, after having fallen 4.5% last year. According to the coordinator of the bulletin, the second quarter should still be weak in public services.

Still, private education and health are already relatively normalized, and the trend is that this movement gains momentum in the second half of the year. “With vaccination and the opening of the economy, the provision of public services will normalize.

Source: Valor