Emerging Countries Will Not Escape From Virus Recession

RIO DE JANEIRO, BRAZIL – Driven by the power of the Chinese economy in the 2009 crisis, most emerging countries will not be able to escape the recession this time in the pandemic.

While in the financial crisis, 38 percent of these economies saw their Gross Domestic Product (GDP) decline, in 2020 it should reach 75 percent, according to a survey by the Brazilian Institute of Economics (Ibre/FGV) based on data from the International Monetary Fund (IMF).

Eleven years ago, with China’s thrust, the emerging economies together managed to achieve a 2.8 percent increase in GDP. However, for this year the projection is for a 1.1 percent contraction. “China was the driving force behind these economies in 2008 and 2009, and is now at the heart of the crisis.

Even if it grows by one or two percent (the IMF estimate is 1.2 percent), it’s a very big hit,” says economist Marcel Balassiano, in charge of the survey. In 2009, the country grew 9.4 percent, creating demand for commodities and benefiting economies such as Brazil’s.

Even if its GDP increases this year, China no longer has the same potential to boost so many countries, as its economic model has also been changing toward domestic consumption, rather than investments in infrastructure. “Domestic consumption has increased in recent years and the Chinese are also likely to feel insecure about leaving home now, which will cause impacts,” says economist Silvio Campos Neto, of the Tendências consultancy.

Another difference hurting the emerging countries this time is that they are no longer growing as fast as they did in 2000. At that time, with the commodity boom cycle, the emerging countries were better positioned to tackle the crisis, with room for more aggressive fiscal policies.

Brazil is precisely one of the countries that will most closely face this change in scenario. “The country is in a worse situation when compared to the last global crisis because it comes from a poor post-recession rebound,” adds Balassiano.

In 2009, Brazil’s GDP fell by 0.1 percent, the same as the global economy. However, for this year the IMF projects a drop of 5.3 percent for the country, which will mean a steeper retreat than the global average.

Global situation

The nature of this crisis, arising from a health issue, will make it much more global and profound, according to the Ibre/FGV study. Worldwide, 80 percent of countries are expected to experience a drop in GDP this year – China and India will be among the few to see positive, albeit modest, figures. In 2009, 47 percent of countries recorded a decline.

“The current crisis will be worse than the preceding one. If we look at the global GDP, the drop will go from 0.1 percent in 2009 to three percent this year,” Marcel Balassiano says.

Among developed countries, the scope of the crisis will also be greater, Balassiano’s survey shows. In 2009, 85 percent of them recorded a contraction in their GDP. This year, it should be 100 percent. Despite being hit harder, some of these economies may recover more swiftly, says economist Álvaro Frasson, of BTG Pactual Digital.

“It is difficult to tell how the rebound will be, but given that monetary policy has had little effect, it is to be expected that the United States will bounce back faster because it has more room for fiscal policy”.

Campos Neto recalls that emerging countries such as Brazil, Mexico and Russia should still suffer from the drop in oil prices. For Fabio Silveira, Macrosector economist, in an optimistic scenario, with no second pandemic wave, global recovery could start at the end of this year. “For now, what we can safely say is that this crisis will be much deeper than in 2009.”

Silveira recalls that, while in 2008 and 2009 the crisis was mainly financial, but with potential to spread to the real economy, today the situation is the opposite. “Now, there is a shutdown in the real economy that could contaminate the financial aspect, following the 2009 crisis”.

This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error