Brake on China’s economy should make Brazil grow less

Analysts project lower expansion in 2023 and higher global inflation, also due to the war in Ukraine and rising interest rates in the US

The deceleration of China, a result of the zero-tolerance policy against Covid-19, should also affect the Brazilian economy this year and next, according to experts. Data released on Monday by Beijing indicate a retraction in the world’s second largest economy in April, and its main trading partners, such as Brazil, will not be unscathed.

Industrial production dropped 2.9% in April, compared to the same month in 2021. Retail sales fell by 11.1% in the period, almost double the market forecast drop, which was 6.6%. Both are at the worst level since the beginning of the pandemic. Meanwhile, the unemployment rate reached 6.1%.

José Augusto de Castro, executive president of the Brazilian Foreign Trade Association (AEB), recalls that China is the world’s largest buyer of commoditiesand, as Chinese demand declines, the trend is that the prices of these inputs — at high levels due to the war in Ukraine — may show some cooling.

Part of this effect may begin to show up in July’s statistics, according to Castro. The less pressured price tends to affect Brazilian exports, which should generate a trade balance with a lower surplus than expected for this year.

most expensive imports

Another impact on the Brazilian economy will come from imports. Castro points out that import prices, in dollars, increased by 34.4% in April and 29.5% in March. With lockdowns in China, importing from that country becomes more difficult.

The consequence is a worsening of the logistical bottlenecks arising from the pandemic, at a time when the cost of freight is already high and should rise even more:

— A product purchased from China that would take 45 days to arrive may take 90 days. If there is no container, the goods do not leave. And there’s no alternative. We can buy supplies from Argentina that can come by road transport, but the country is a small supplier to Brazil — explains Castro.

Roberto Padovani, chief economist at BV, recalls that, in addition to the zero-tolerance policy against Covid-19 in China, which impacts the global economy, there is the war in Ukraine and the rise in interest rates by the American Central Bank. The result, says Padovani, is an economic slowdown in Asia, Europe and the United States, which reduces the demand for raw materials, affecting Brazil through the export channel:

— When the world slows down, the risk in relation to emerging markets worsens, which ends up inhibiting financial flows. This puts more pressure on the exchange rate here and prevents a reduction in inflation in Brazil.

prolonged effect

Padovani says that this situation will keep inflation high for a longer period of time, which reduces the population’s purchasing power and should lead to a further increase in interest rates by the Central Bank. BV revised the 2022 IPCA to 9% and now sees the Selic rising 0.75 point at the June meeting, ending at 13.5%, with the rate at a high level for longer:

— As a result, the lower growth should be in 2023. We see a slowdown in the second half and we reduced the projections from 1.5% to 0.5% for the Brazilian GDP next year —says the chief economist at BV.

Étore Sanchez, chief economist at Ativa Investimentos, says that growth of close to 4.5% for Chinese GDP in 2022 — as is now expected, compared to expectations of up to 6% — puts the global economy in a slowdown:

— It is a country where there is not much bureaucracy to step on the accelerator in fiscal terms. But it is a country that is the factory of the world and that should cost to reach 4.5% growth this year. The zero-tolerance policy against Covid-19 restricts the offer of products. This is reflected in a world with less money and a perpetual inflationary process.

Lívio Ribeiro, an associate researcher at FGV/Ibre, also envisions a more lasting global inflationary process:

— Inflation stays higher for much longer, and in types of products that are more demanded by low-income families, such as fuel, gas cylinders, food and, to some degree, public transport. All this conjuncture causes prices to rise.

Ribeiro points out that this inflation takes away consumption capacity, impoverishes the poorest and tends to depress economic growth. His outlook for the second half of the year is for a more pronounced deceleration, making the debate for 2023 more difficult.

Source: O Globo Agency