GDP will have the best biennium since 2011, but 2024 is uncertain – 12/05/2023 – Market

The Brazilian economy cooled down from the second to the third quarter, this time with practically no surprises. If nothing grows in this last quarter, GDP in 2023 will have increased by 3%, the same pace as in 2022. The country has not grown by 3% or more for two consecutive years since 2011 (excluding 2021 as a mere recovery from the pandemic shock). However, per capita income (GDP) is still lower than in 2013 and should remain so until 2025. We have experienced a historic disaster.

More important is knowing where the impulses for growth in 2024 could come from. For now, they seem weak or difficult to see, in the fog of uncertainty.

To summarize, the GDP of 2023 was thanks to improvements that are still poorly understood in the world of work and commodity exports, plus a somewhat increase in government spending, an increase that is now unsustainable. Investment in expanding production is going badly and getting worse.

Brazil will grow in 2023 because the number of people working continued to increase, with some increase in the average salary, still the biggest surprise of the year. The significant drop in inflation increased real labor income. The increase in spending on social benefits (Bolsa Família, INSS) gave another boost. Bank credit for individuals took another turn. Thus, family consumption grew – in fact, it even accelerated, in the third quarter (compared to the second).

However, in 2024, there will be little increase in spending on social benefits. There will not be another significant drop in inflation. The wage bill (total income from work) is still growing well, but at a notable slowdown. Lower interest rates in 2024 could do something for bank credit. It is difficult to see where a significant increase in employment will come from.

This year, the other highlight has been the performance of the external sector (exports of goods and services minus imports), largely due to oil and grains (soy, etc.) and the drop in imports (a sign of an economy somewhat without gas, less willing to import machinery, equipment and other production inputs). Agriculture should have another good year in terms of production levels, but there should be no increase compared to 2023; perhaps there will be a small decline.

We are doing very poorly in what economic statistics call “gross fixed capital formation”, investment in new production facilities (civil construction), machines, software, etc. Cai has had four quarters in a row. The investment rate fell to 16.6% of GDP in the third quarter — this is investment expenditure as a proportion of GDP, income or national production in the period. This is a level higher only than the years of the Great Recession (2015-2016), the following mediocre years and 2003. With just that much GDP dedicated to investment, we won’t get very far. Not even close: a reasonable GDP in 2024 will depend on the recovery of investment.

Horrible interest rates partly explain poor investment performance. However, it is not enough for the Central Bank to reduce the Selic, a very short-term rate, for the credit and capital market situation to improve. Creditors continue to charge too much to finance the government’s huge deficits and debt; Interest rates in the US contribute to the scarcity of money. As for Imponderável da Silva, the investment depends on the unfathomable spirits of companies and entrepreneurs.

Financial conditions have even improved a little in recent weeks. Additional improvements depend, of course, on interest rates in the US and a decisive sign that there will be more control over the Brazilian government’s deficit and debt.

I have to remember that we are talking about the short term here. Long-term growth depends on other things. For example, it also depends on Brazilian students overcoming their horrendous performance in Pisa, the international education assessment test. But Brazil, which is in charge and has a voice, doesn’t care about education, particularly that of poor children.