Stabroek News

Brazil unemployme­nt, end of emergency aid threaten economic recovery

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BRASILIA, (Reuters) - Expiring emergency payments to millions of low-paid Brazilians and the likely restoratio­n of growth-choking austerity measures, as unemployme­nt rises, risk torpedoing growing optimism that Latin America’s economy may not tank as much as feared.

The average forecast for 2020 gross domestic product is now showing a decline of 5.7%, a weekly central bank survey of economists on Monday showed, milder than the 6.5% drop seen a month previous.

The improvemen­t is widely chalked up to the stronger-thanexpect­ed impact of 600 reais monthly “social transfer” programs to lowpaid workers, subsidies far-right President Jair Bolsonaro agreed to under pressure from Brazil’s congress.

While it would still represent the steepest annual downturn on record, it is the most optimistic outlook since May. The central bank chart below shows the 2020 GDP growth forecasts in blue, and the 2021 forecast at a robust 3.5% for a seventh week.

Much of the recent optimism can be traced to a decision to extend the emergency payments by an extra two months, says Julia Braga, associate professor of economics at the Universida­de Federal Fluminense in

Rio de Janeiro state.

The monthly payments from April to August will total around 254 billion reais ($48 billion), according to Economy Ministry estimates. That’s around 3.5% of GDP put directly into people’s pockets in a matter of months.

Almost half of the entire population, across nearly 30 million families, received the aid in June, statistics agency IBGE reckons.

“If the emergency aid ends and there is no similar type of income transfer program in its place to meet the needs of informal workers and poor families, there will be no growth, there will be no rebound,” Braga said.

“Even if a COVID vaccine is found, economic fragility is huge. The labor market won’t recover quickly ... and if the government returns to austerity, there will be no broader recovery,” she said.

Local media reports say the Economy Ministry is looking into extending these payments through the end of the year, but at a lower 200 reais a month. Even the reduced level would be a major U-turn for officials who insist the spending well has run dry and may reflect the unexpected popularity boost Bolsonaro has enjoyed from the program in some of

Brazil’s poorest regions.

The economic case for public investment, known as “fiscal multiplier­s,” is a strong one, especially when the economy is depressed.

During normal times, 1% growth in public investment leads to 1.3% growth in GDP, according to Rodrigo Orair at the IPEA institute for applied economics in Brasilia. During recessions, the impact is even stronger, with a 2.2% rise in GDP growth.

But Economy Minister Paulo Guedes and his team take a completely different view, arguing that tight control over public spending is paramount, especially given the record deficit and debt caused by the crisis.

 ??  ?? Jair Bolsonaro
Jair Bolsonaro

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