BUENOS AIRES — Brazil’s weakened economy is in danger of sinking deeper into recession this year ahead of October’s presidential election, as anxiety over the vote and steep interest rate rises continue to hurt growth, a Reuters poll showed.
Economic activity fell back into negative territory in 2021 after a recovery from the coronavirus pandemic-induced slump, pushed down also by a rough mix of high inflation and unemployment that remains a threat.
The spread of the Omicron variant https://www.reuters.com/world/americas/brazil-reels-omicron-spreads-weighing-hospitals-economy-2022-01-14 of COVID-19 has become an extra burden. Under fire for his handling of the health crisis and the economy, President Jair Bolsonaro is trailing behind former President Luiz Inacio Lula da Silva in vote surveys.
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The Jan. 10-14 poll pointed to a meager expansion of Brazil’s gross domestic product this year, but there were signs this view could be downgraded to a deeper contraction than the small one that began in 2021.
GDP is expected to increase only 0.7% in 2022, according to the median estimate of 36 economists polled. This would be much slower than the 5.0% clip for 2021 penciled in October’s survey, the last one to include that year’s forecasts.
“Tight monetary policy and the combination of fiscal and political risks in an election year should contribute to a significant slowdown in growth in 2022,” said Roberto Secemski, a Barclays economist, who expects just 0.3% growth this year.
The bank estimates investment will drop 4.3% in 2022, a hard reversal from last year’s stellar 14.0% rise, with firms holding back until the vote’s outcome turns clearer. Household spending would rise just 0.8% compared to 3.9% in 2021.
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Official growth figures for full-year 2021 will be published in March. This year’s expected 0.7% growth is also well below the consensus estimate rate of 1.6% for 2022 in October’s poll. And more pessimism is brewing.
RECESSION CALLS
Expectations for a recession are on the rise. Citi and Morgan Stanley cut their 2022 forecasts last week, while J.P. Morgan did so earlier this month. Including their revisions, a total of six economists saw a contraction compared to none in the last poll.
In another sign of mounting skepticism, when asked in a separate question how risks to their growth outlook for Brazil were skewed, all but two of 15 respondents said they were more to the downside.
“We are revising down our 2022 GDP growth forecast to -0.2% (from +0.5% previously) … Worse credit conditions, the spread of the new variant and the risk of a 1Q22 slowdown in China are among the reasons,” Morgan Stanley economists wrote in a report.
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Inflation was seen at 5.8% for 2022, again breaching the official target’s upper limit of 5.0%. Consumer price rises jumped to a six-year high of over 10% in 2021 despite an aggressive policy tightening cycle expected to bring rates up to 11.75% this year.
Prospects for Mexico look better. However, the path back to pre-pandemic levels is a bumpy one, as the latest GDP data have stirred concerns the economy slipped into a recession https://www.reuters.com/world/americas/mexico-economy-slips-december-hinting-weak-close-2021-2022-01-18 in the second half of 2021.
While Mexican growth was forecast at 2.8% in 2022 versus 3.0% in the last poll, as in Brazil, some analysts https://www.reuters.com/world/americas/bofa-cuts-mexico-2022-gdp-outlook-15-2022-01-11 are starting to cut their estimates, citing softer-than-expected domestic economic activity.
“There are significant downside risks to economic growth, mainly policies that discourage domestic investment and negative inertia from economic stagnation in the second half of 2021,” Banco Base economist Jesus Lopez said.
(For other stories from the Reuters global economic poll: )
(Reporting and polling by Gabriel Burin in Buenos Aires and Tushar Goenka in Bengaluru; Editing by Ross Finley and Susan Fenton)
Climate inaction will depress the world’s economy more than previously estimated, according to a new study that takes into account the impacts of weather extremes and variability such as temperature spikes and intense rainfall.
A scenario in which global temperatures rise 3C on average will reduce the world’s gross domestic product by about 10%, doctoral researcher Paul Waidelich of ETH Zurich and colleagues write, with less developed countries paying the worst toll. By comparison, limiting global warming by 2050 to 1.5C — as sought by the Paris Agreement — will reduce that impact by about two-thirds.
Climate change is on track to cost the global economy $38 trillion a year in damages within the next 25 years, researchers warned on Wednesday, a baseline that underscores the mounting economic costs of climate change and continued inaction as nations bicker over who will pick up the tab.
Key Facts
Damages from climate change will set the global economy back an estimated $38 trillion a year by 2049, with a likely range of between $19 trillion and $59 trillion, warned a trio of researchers from Potsdam and Berlin in Germany in a peer reviewed study published in the journal Nature.
To obtain the figure, researchers analyzed data on how climate change impacted the economy in more than 1,600 regions around the world over the past 40 years, using this to build a model to project future damages compared to a baseline world economy where there are no damages from human-driven climate change.
The model primarily considers the climate damages stemming from changes in temperature and rainfall, the researchers said, with first author Maximilian Kotz, a researcher at the Potsdam Institute for Climate Impact Research, noting these can impact numerous areas relevant to economic growth like “agricultural yields, labor productivity or infrastructure.”
Importantly, as the model only factored in data from previous emissions, these costs can be considered something of a floor and the researchers noted the world economy is already “committed to an income reduction of 19% within the next 26 years,” regardless of what society now does to address the climate crisis.
Global costs are likely to rise even further once other costly extremes like weather disasters, storms and wildfires that are exacerbated by climate change are considered, Kotz said.
The researchers said their findings underscore the need for swift and drastic action to mitigate climate change and avoid even higher costs in the future, stressing that a failure to adapt could lead to average global economic losses as high as 60% by 2100.
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How Do The Costs Of Inaction Compare To Taking Action?
Cost is a major sticking point when it comes to concrete action on climate change and money has become a key lever in making climate a “culture war” issue. The costs and logistics involved in transitioning towards a greener, more sustainable economy and moving to net zero are immense and there are significant vested interests such as the fossil fuel industry, which is keen to retain as much of the profitable status quo for as long as possible. The researchers acknowledged the sizable costs of adapting to climate change but said inaction comes with a cost as well. The damages estimated already dwarf the costs associated with the money needed to keep climate change in line with the limits set out in the 2015 Paris Climate Agreement, the researchers said, referencing the globally agreed upon goalpost set to minimize damage and slash emissions. The $38 trillion estimate for damages is already six times the $6 trillion thought needed to meet that threshold, the researchers said.
Crucial Quote
“We find damages almost everywhere, but countries in the tropics will suffer the most because they are already warmer,” said study author Anders Levermann. The researcher, also of the Potsdam Institute, explained there is a “considerable inequity of climate impacts” around the world and that “further temperature increases will therefore be most harmful” in tropical countries. “The countries least responsible for climate change” are expected to suffer greater losses, Levermann added, and they are “also the ones with the least resources to adapt to its impacts.”
What To Watch For
The fundamental inequality over who is impacted most by climate change and who has benefited most from the polluting practices responsible for the climate crisis—who also have more resources to mitigate future damages—has become one of the most difficult political sticking points when it comes to negotiating global action to reduce emissions. Less affluent countries bearing the brunt of climate change argue wealthy nations like the U.S. and Western Europe have already reaped the benefits from fossil fuels and should pay more to cover the losses and damages poorer countries face, as well as to help them with the costs of adapting to greener sources of energy. Other countries, notably big polluters India and China, stymie negotiations by arguing they should have longer to wean themselves off of fossil fuels as their emissions actually pale in comparison to those of more developed countries when considered in historical context and on a per capita basis. Climate financing is expected to be key to upcoming negotiations at the United Nations’s next climate summit in November. The COP29 summit will be held in Baku, the capital city of oil-rich Azerbaijan.
