Epidemic, Putin’s war, China’s war and Lula’s future – 02/22/2023 – Vinicius Torres Freire

So far, the political year has been consumed by the horror of the January 8 coup uprising and by the interest rate dispute.

The basic interest rate rose for a damned combination of reasons. If it rose too much or if it is or will remain too high, it may even be a reason for enlightened debate, which has not been our case. But it didn’t go up on whims.

In order to have some idea of ​​the reasons for this increase, it is necessary to pay attention to what is going on in the world — to be less of a jerk. Although we are capable of committing a lot of stupidity and self-mutilating cruelty, Brazil is an offal carried by international economic currents.

From the final third of 2021, prices began to rise rapidly, here and abroad. Perhaps interest rates fell too low during the epidemic, just as perhaps there was some overspending by governments. In the environment of even rapid recovery of consumption in 2021, the Covid supply shocks caused the broth to spill.

There was a shortage of goods transport or a lack of parts and raw materials, among other problems of breaking a production chain that is internationalized.

At the end of 2021, a global energy crisis also began. Vladimir Putin’s war inflamed fuel prices and even caused a shortage of commodities like food, created uncertainty and depressed economic moods, particularly in Europe.

In addition to the mess of government spending from the dark (2019-2022), notorious at the end of 2021 (which raised interest rates in the market, just check the records), the Central Bank of Brazil had to deal with this flurry of global shocks.

Is the Central Bank right in suggesting that the Selic should perhaps stay at 13.75% until the end of the year? Maybe not. Even “the market” economists still don’t believe that. The median of the projections compiled by the BC is for Selic to 12.75% at the end of this 2023 (in the wave of optimism that came with Lula’s election, it had fallen to 11.25%. With the sururu of the fiscal and monetary dispute, it rose) .

In any case, changing the Selic rate in the short term will not do much for the country’s growth, which depends on much more, including what is happening abroad.

At best, the 2023-2024 biennium will be weak in the world economy, with inflation and interest rates still high and, therefore, low growth. In addition, the epidemic, Putin’s war and the Sino-American cold war will, it seems, transform the way in which it is produced and traded in the world.

We hear bombastic slogans like “deglobalization”, although the changes do not come in the rhythm, direction, sense and form proclaimed by the seers. But they are coming. Decarbonization, green economy, more local production of sensitive and advanced technologies, search for more reliable suppliers of components and raw materials, artificial intelligence: all this has been the object of policies of central countries, starting with the United States. Other “Western” countries will follow suit. To be more clear: this means governments intervening and spending to induce the economy to go this way or that.

There will be opportunities: to be a reliable supplier, to discover productive niches. There are enormous risks: even greater technological obsolescence and socio-environmental exclusion from markets (through “dirty” production or through demeaning economic exploitation).

At the end of 2021, Brazil was seen as an emerging market with greater possibilities than its peers, in the short term. In the medium term, we may find niches or see the rest of the industry we have, such as cars, become obsolete for good or find barriers for our environmentally incorrect commodities.

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