Lessons from mistakes in the rich world

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Devastating as the virus, the recession spread quickly, threw the rich world into a big hole, and stopped global trade in the quarter just ended. In the largest power in the world, the United States, the Gross Domestic Product (GDP) of the second quarter was 9.5% lower than that of the first, according to the first official estimate. In the European Union the fall was 11.9%. In the euro zone, the fall was 12.1%, with much uglier results in some large partners, such as France (-13.8%) and Spain (-18.5%). In Brazil, a preliminary government estimate, released in the middle of July, points to a quarterly decline of 7.5% in the period from April to June, but the official update of the national accounts should only come out on September 1st. In relation to the same three months last year, the loss was 9.3%, according to the same provisional calculation.

All of these numbers are the worst of the historical series available in these countries. Not even in the financial crisis of 2008-2009, the most serious since the world depression started in 1929, were there such large and diffuse losses in the level of activity. The American government usually discloses national accounts in the form of annualized data. Projected for one year, the quarterly drop in GDP in the United States would reach 32.9%. That was the number officially released on Thursday, but the 12-month effective result will almost certainly be much less negative.

Even with the reactivation already observed in the rich world and in several emerging countries, including Brazil, it is still risky to bet on a sustained recovery this year and next. The control of the pandemic is very uneven in the United States. Contamination and the number of deaths have increased in various parts of the country. Some governments have reversed their opening programs and this should hamper the resumption of business and employment.

Similar problems have occurred in Europe. After the improvement observed in the contagion and death curves, the health situation worsened again in some cities and regions. The case of Catalonia, in Spain, is one of the most notorious, but the spread of the disease has been observed in other countries, including England.

The intensity of the bounce varies between regions, but the alarm signal regarding the pace and conditions of the resumption was clear. Even in countries with better performance in controlling the pandemic, the risk remains high, as the World Health Organization (WHO) has warned. There will only be real safety conditions when vaccines and, perhaps, effective drugs against covid-19 are available. The experience of the rich world, where the epidemic manifested itself before it was noticed in Brazil, should be used as a warning to the Brazilian authorities, starting with the federal ones.

If the use of this lesson depends on President Jair Bolsonaro, it will hardly happen, judging by his behavior so far. Without federal coordination, state governments make decisions that are sometimes hurried and learn from costly and even deadly mistakes. This is also why any economic projection is risky. The government insists on betting on a 4.7% contraction in 2020, while market estimates are between -5% and -6%. Any calculation is very insecure while the game of advances and retreats in the reopening continues. Precipitation, as several economists have warned, may be more damaging to growth than a less ambitious and more planned advance.

With an increase of 11.5% in the second quarter, after falling 6.8% in the first quarter, China is an exception among the major economies. The Chinese market absorbed about a third of Brazilian exports in the first half. Thanks to China, and agribusiness, the country maintains some security in the balance of payments, even with a reduction in total sales. The international environment remains unfavorable, in general. In the second quarter, according to a preliminary estimate by the WTO, the global exchange of goods must have been 18.5% lower than that of a year earlier. In Brazil, agribusiness remains the main pillar of trade.

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