Activity in 2023 was a little worse than the number – 03/09/2024 – Samuel Pessôa

The Brazilian economy grew 2.9% in 2023. All growth occurred in the first half of the year. Contractionary monetary policy offset expansionary fiscal policy, and the economy slowed down in the second half of the year. Throughout the year, the quarterly pace of the economy was, respectively, 1.3%, 0.8%, 0% and 0%.

Sectors that are not greatly influenced by economic policy —agriculture and mineral extractive industry— contributed approximately one percentage point. Thus, the growth of cyclical sectors (influenced by economic policy) was, in 2023, around 2%, or 0.5% per quarter.

For 2024 and 2025, if the economy runs at 0.5% per quarter, growth will be, respectively, 1.5% and 2%. In other words, growth of 1.5% in 2024 is not very different from 2.9% in 2023, if we consider that, in 2024, agriculture will not grow. It is in this sense that growth in 2023 was a little worse than that expressed in the official number of 2.9% and that of 2024 will be a little better than the closed number that IBGE will release in March 2025.

Inflation is on track to end the year at 3.5%, with Selic likely at 9%. There are two favorable factors in the inflationary picture in 2024: food, which should run at 3% to 3.5%, and industrial goods, which, with deflationary pressure from China, should run close to 1%. The question for 2025 is whether there will be a reinflation led by services.

The concern is due to strong wage growth. Real wages, deflated by GDP (Gross Domestic Product) inflation, have grown 3% per year. Labor productivity in Brazil grows less than 3%. If there is no moderation in real wage growth, we will observe, at some point in the future, an acceleration in services inflation.

The bad note for economic activity in 2023 was the drop in investment at constant prices, of 2.9%. The economy is unable to engage in a long growth cycle. We have an unsustainable fiscal situation. According to the IFI (Independent Fiscal Institution), the structural primary surplus accumulated in four quarters ending in the third quarter of 2023 was -1.1% of GDP. The conditions for stabilizing public debt are not in place.

As I have been saying in this space for 11 years, the fiscal imbalance means that we are still unable to negotiate our social contract in a sustainable way. Without this condition, it is not possible to calculate the return on an investment project. The lack of horizon makes it difficult to resume investment.

After a peak of 22.8% of GDP in 2013, the investment rate, at 2023 prices, fell to 16.9% in 2017. There was a slight recovery to 19.7% of GDP in 2021. Political uncertainties and lack of a solution to the fiscal imbalance brought it to 18.2% of GDP in 2023. We will have to wait for the next presidential term for a more permanent solution to the fiscal imbalance. Until then, it will be difficult to observe a large cycle of increased investment.

Celso Furtado, when he finished the manuscript of his classic “Formação Econômica do Brasil”, sent it by letter from Cambridge to the editor in Rio de Janeiro. There was a loss. Years later, Furtado found the manuscript lost in a mailroom “like suspicious material.”

In his intellectual autobiography, he wrote: “More than from years of observation and study, I learned from this episode what underdevelopment is, this manifestation of idiocy widespread in the social organism.” This passage occurred to me because of the ban on our high school students reading the novel “O Avesso da Pele”, by Jeferson Tenório.

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