FGV Economics Institute: High Rate of Covid-19 Deaths Worsens Countries’ GDP Drop

RIO DE JANEIRO, BRAZIL – In general, countries with higher mortality rates related to Covid-19 also showed worse economic performance, according to a study by researchers Aloisio Campelo, Marcel Balassiano and Rodolpho Tobler, of the IBRE (Brazilian Institute of Economics of the Getúlio Vargas Foundation – FGV).

The study considers a sample of 12 countries representing approximately 60 percent of the world economy: Brazil, USA, Germany, France, Spain, Italy, Japan, United Kingdom, Canada, China, Russia and Mexico.

The survey correlates the difference between the most recent IMF (International Monetary Fund) October projections, which already include the actual data released by these economies, and pre-crisis projections with the mortality rate per million inhabitants compiled up to last Monday, October 19th, by the Worldometers website.

Spain is the country with the highest mortality rate in the sample and the greatest difference between GDP growth rate projections.

Mexico, the United Kingdom and Italy are also countries with high mortality rates and differences of over ten percentage points in GDP growth, according to the study.

China and Japan showed the lowest mortality rates and changes in economic projections.

Brazil and the U.S. also present high mortality rates, showed relevant changes between January and October, but to a lower extent than the other countries in the sample.

According to the researchers, in the Brazilian case, the impact of the emergency aid helped reducing economic activity losses. In the United States, there were also significant stimulus measures that helped mitigate the losses.

“They are two very poor countries in conducting the health crisis and they will experience sharp drops [in GDP], but they could be worse,” says Marcel Balassiano

“Brazil and the U.S. were countries that greatly boosted their economies, particularly consumers themselves, by providing the population with considerable money, and this may have softened the rate review, but there is still a positive correlation between mortality and review,” says Rodolpho Tobler.

The researchers emphasize that the correlation is not perfect, because other variables also impact these countries’ economies and that these results are intended for this sample of countries, considering this period.

They also say that this is a time of lower economic uncertainty given the development of the health crisis after more than six months and the first results of the stimulus measures adopted.

“In October, there is much less uncertainty than in July and much less than in April. In June, the IMF projection for Brazil GDP was a 9 percent drop; now, it stands at 5.8 percent. We can say that these October projections include much of the effective data and stimulus policies adopted”, says Marcel Balassiano.

The researchers also collected consumers and companies confidence rates and concluded that countries in which these expectations were higher in the period before the crisis showed higher GDP growth reviews.

“The countries with the best prospects in relative terms, as pointed out by the confidence indices, were caught by surprise by the unrelenting crisis. Rather than performing as favorably as the confidence indices showed, these countries experienced strong growth reviews for the year. On the other hand, in countries where confidence was already relatively lower, the reviews were less pronounced,” says the study.

Tobler says that in Brazil, confidence was not as high before the pandemic and that there was a rebound in the indicator due to economic stimulus, which impacted entrepreneurs more than consumers.

“In recent months, we even see a rebound of industry confidence, but very cautious consumers. The emergency aid contributed greatly to mitigate this negative moment, but we know that the fiscal issue prevents it from being sustained for a long time,” says the researcher.

“Consumers are becoming very cautious with these coming months, because the labor market was greatly impacted, the families income too, so when the emergency aid is gone, this can be a major problem in the course of recovery”.

“We will see how things will evolve as of the fourth quarter. Stimuli were very high, Brazil spent a lot. There is uncertainty, not knowing how the economies will behave with the end of the stimuli,” says Balassiano.

Although government stimulus measures have helped to mitigate economic losses in Brazil, a UFRJ (Federal University of Rio de Janeiro) study conducted in partnership with the IRD (French Institute for Research and Development) found that there is a correlation between the preference for President Jair Bolsonaro and the growth of Covid-19. The conclusion is that the President’s ambiguous rhetoric prompts his supporters to engage more frequently in risky behavior.

Source: Folhapress

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