Christmas 2024 and the economy – 11/11/2023 – Vinicius Torres Freire

The end of the year has begun. Conversations about where to spend Christmas, what to do with the children on vacation and that harbinger of distress over bills, even bigger at the beginning of the year. I didn’t see flocks of hallelujahs in São Paulo. Were they confused by the succession of hot flashes?

For those increasingly rare who deal with economics, it’s time for flights of analyzes for next year. We expect the estimation errors for 2024 to be moderate and at least useful. They have been outrageous, especially regarding economic growth. According to year-end estimates, which have been incorrect since 2020, the country would today be around 5.5% poorer than it already is.

Growth and GDP are esoteric and indifferent subjects for most. Those who pay attention to more or less organized public debates have ceased to be of interest to the old or dead “public opinion”, destroyed by unsociable networks.

In the first two years of his first government, Luiz Inácio Lula da Silva used to ask the people for patience, as the “miracle of growth” would soon come. Who still deals with how to make the country grow more? Redistributing is not enough, not by a long shot.

Brazil is poor. In a list of around 180 countries, it usually comes in 80th place in average income — and is lagging behind. Since 2000, even excluding the years of the Great Recession, we have grown at 85% of the world’s average GDP speed.

Instead of growth, there is talk of “putting the poor in the budget.” The budget is over, even though there was a large increase in expenditure in 2023 and 2024. It is possible, and now necessary, to charge more tax, but this extra would only pay for the expense that is not covered by tax revenue and, if something more comes, it would reduce the debt.

The left or many of those who pass for economists on the left think that an unlimited increase in debt is not a problem. AND. To start, just look at interest rates, the cost of the government borrowing money.

In the 12 months up to September, the cost of domestic debt was 11.15%. Discounting inflation (IPCA), almost 6% per year. In September, the average interest rate on new loans was 11.93%. The rentiers have fun. The country grows less than it could. Etc. No, it’s no use just for the Central Bank to change the Selic.

The fall in the Selic could, however, help alleviate the situation in the second half of 2024. However, it is necessary to know what will happen to longer-term interest rates, which have increased since August, when the Selic began to fall, due to interest rates and the expected failure of the government’s fiscal targets.

In 2023, GDP will have grown mainly due to agriculture and an increase in income transfers (Bolsa Família, other social benefits). IBGE and Conab estimate that the harvest will still be exceptional, but smaller than this year’s — there is an El Niño risk. Income from exports, roughly speaking, oil, grains, food and iron, should not increase.

The employment level remains good, although the reason is not very clear. It is difficult for it to grow much in 2024 or for it to be possible to accurately estimate what it will be. Some relief may come from this.

The federal deficit may remain at the same level, which does not provide a boost to GDP, a stimulus that would otherwise be weakened by high interest rates, also thanks to the deficit and the almost certain demoralization of the fiscal plan. The capital market is recovering, but high interest rates and uncertainty should leave the recovery of productive investment until the second half of 2024.

With luck, without new economic and political problems in the world, the country may grow by 2%, a mediocre margin better than the post-Great Recession and pre-epidemic average, accumulating fiscal problems and without a growth or development target.

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