Rising inflation and recession in the United States. Problems in the largest global economy could have adverse effects on Brazil, at a time when projections for the growth of our economy in 2022 are increasing and inflation projections are decreasing.
Analysts predict difficulties in combating the rise in prices, due to the tendency of the real to depreciate against the dollar, and the possibility of capital outflows from Brazil.
The CEO of Siegen Consultoria, Fabio Astrauskas, points out that the impact could be significant in Brazil, which has long lived with high inflation. Since October, the annualized rate exceeds 10%.
“Even with the setback shown in the IPCA-15, it would be foolhardy to predict a sharp drop in prices. Inflation may have a gradual reduction in the country, including deflation in July, but the troubled scenario both here and in the world does not warrant optimistic forecasts”, he says.
US raises interest rates to control inflation
Concerns about high US inflation, which reached 9.1% in the 12 months ending in June, the highest since December 1981, made the FOMC (the Brazilian Copom equivalent) raise the US interest rate for the fourth time in a row, by 0.75 percentage point. It passed to the range of 2.25% to 2.50% per year.
The increase in interest rates in the United States, amid international turmoil and risk aversion on the part of investors, favors purchases of safer assets, such as US Treasury bonds, and tends to cause the devaluation of other currencies.
This makes it difficult for funds to enter higher risk countries, such as Brazil. According to B3, in the month, until the 25th, there was the entry of just over R$ 400 million in resources from foreign investors.
There is also less liquidity in the market. “This means less money looking for returns in the world. Less abundance of capital. And with higher interest rates there, investors think a little more about investing here or in other countries, where the risk is greater”, point out analysts at Rico Investimentos.
Even corporate transactions in Brazil can be affected by the reduced availability of cash in the global economy. “This helps to stop business growth,” says Alexandre Pierantoni, director of corporate finance at Kroll consultancy.
US GDP also causes concern
Another concern for the Brazilian economy comes with the slowdown in economic activity in the United States. This Thursday, the Bureau of Economic Analysis (BEA) released the first preview of second quarter GDP, which shows an annualized drop of 0.9%, the second retraction in a row. This puts the country into a technical recession.
The deceleration is also predicted by the International Monetary Fund (IMF), which this week lowered growth expectations for the largest global economy in 2022 and 2023. year, now projects 2.3%. The estimate for next year dropped from 2.3% to 1.0%.
The situation of the American economy worries the Brazilian export sector, precisely at a time when sales there are on the rise. In the first half, US$ 17.63 billion were exported, 31.85% more than in the same period in 2021. According to the Foreign Trade Secretariat (Secex), it is the best performance since the beginning of the historical series, in 1997. .
“It is the largest economy in the world and Brazil’s second largest trading partner”, says the head of economics at Rico Investimentos, Rachel de Sá.
She warns that, in this context, with the scenario of high inflation and rising interest rates worldwide, the probability of a global recession is gaining strength, bringing volatility to markets around the world and increasing the chances of contagion in Brazil.
At the same time, according to Alex Kuptsikevich, a senior analyst at FxPro, forces the Federal Reserve (the American Central Bank) to reduce the pace of interest rate hikes. He points out that the retraction of the American economy is not the result of monetary tightening, but the drop in public spending resulting from the end of programs related to Covid. The impacts of high interest rates should be felt in the United States in six months.
Brazil’s strengths
Rachel de Sá, from Rico Investimentos, says that one factor can minimize the impacts here: “The fact that we took the lead in relation to the increase in interest rates positions Brazil relatively well in the battle against inflation. is above 13% per year and real interest rates are close to 6%”, he says.
Another aspect that can help Brazil in the second half of the year is an eventual recovery of the Chinese economy. After a sharp downturn in the economy due to lockdowns in some of the main economic hubs, such as Shanghai and Shenzhen (eastern China), the Chinese government must “step on the accelerator” of stimulus, trying to recover some of the lost growth this year.
The IMF’s projection for Chinese GDP growth is 3.3%. But analysts point out that the local government will do its best to achieve the Chinese Communist Party’s (CCP) original forecast, which was for a 5.5% expansion in 2022.
