In recent years, the global economy has undergone extra-economic shocks of great magnitude, giving rise to a scenario that international organizations call a “triple crisis,” stemming from the COVID-19 pandemic, the war in Ukraine and extreme weather events, whose incidence and intensity have increased significantly, according to the UN.

Emerging and developing market economies risk facing a new lost decade. According to the International Monetary Fund (IMF), about 55% of low-income developing countries and 30% of emerging market economies were, by mid-2022, over-indebted or already in external debt crisis. 

The new phase of monetary tightening in advanced economies in response to inflationary pressures caused by the “triple crisis” has further aggravated this worrying situation in emerging and developing countries.

Today's Letter IEDI assesses the impact of the “triple crisis” in Brazil in comparison to the set of emerging and developing economies, but also to the group of advanced economies. In addition, Brazilian performance is also contrasted with two regional blocks: Latin America and the Caribbean, to which Brazil belongs, and emerging and developing Asia, an area that stands out for its economic dynamism. Finally, we bring specific data for selected countries, too: Germany, France, the United States and Japan, among the advanced ones, and China, India, Mexico and Argentina, among the emerging ones. 

The comparison is made through general indicators of economic performance: GDP growth rate, unemployment rate, inflation, current account balance of the balance of payments, fiscal result and public debt. Two periods are considered: the years 2017-2019 and the three-year period of the “triple crisis,” from 2020 to 2022. The data for 2022 are the latest IMF projections, released in the Oct'22 edition of its World Economic Outlook, which was the subject of Letter IEDI n. 1169 “World Economy in Slowdown.”

The effect of the “triple crisis” on Brazil's economic growth has so far been relatively mild in international comparison. The average growth rate of our GDP declined from +1.44% in 2017–2019 to +1.18% in 2020–2022, a loss of about 0.3 p.p. in the period.

In emerging and developing economies (EMDEs) and advanced countries (AEs), the decline in the average GDP growth rate in 2020–2022 was in the order of 40% to 50% of what it was in the previous three years. In the first case, it decreased from +4.34% to +2.82% (-1.51 p.p.) and, in the second case, from +2.16% to +1.07% (-1.09 p.p.) in the period.

The interaction of three main factors attenuated this effect in Brazil: monetary policy and, above all, countercyclical fiscal policy during the pandemic, with emphasis on emergency aid; relatively timid anti-COVID-19 restrictive measures; the rise in commodity prices from 2021, which gained momentum with the war in Ukraine and favored the country's export performance. 

However, it is worth remembering the pattern of low economic dynamism in Brazil that followed the 2015–2016 crisis. Even before the shock of the “triple crisis,” our performance was already far below that of the EMDEs and also the AEs. So much so that the Brazilian unemployment rate reached double digits and was far above that of other countries, including neighbors that also came out of a period of crisis, such as Argentina.

In the three-year period 2017–2019, Brazil recorded an average unemployment rate of 12.4% versus 9.1% in Argentina and 3.4% in Mexico. For the advanced economies, the level was 5.2%. Thus, the shock of the “triple crisis” did not bring further deterioration in the Brazilian case, which, due to the stronger reaction of the service sector in 2022, registered an average unemployment rate of 12.2% in 2020–2022.

This behavior does not differ among those countries with high unemployment in 2017–2019 in the sample selected here. In the case of Argentina, the average unemployment rate in 2020–2022 remained unchanged at 9.1% and in France it showed a much more pronounced reduction than the Brazilian figure, going from 9.0% to 7.8%. 

The “triple crisis” was also accompanied by strong inflationary pressures. The 2021 recovery caused demand-supply mismatches in commodity markets, triggering a new commodity price boom and multiplying bottlenecks in global value chains, which pushed up prices for manufacturing goods. The war in Ukraine has prolonged and in some cases amplified these imbalances. 

In this context, inflation reached, in mid-2022, the highest level since 1982 in advanced economies and the highest since 1999 in emerging and developing economies. Excluding Argentina, Brazil recorded the largest increase in inflation between the two triennia, from +3.4 p.p., going from 3.6% in 2017–2019 to 7% in 2020–2022, on average.

That is, the average pace of inflation almost doubled from one period to the other. But we are not alone in this path. In the advanced economies, inflation more than doubled, jumping from 1.7% in 2017–2019 to 3.7% in 2020–2022. In the EMDE group (from 4.9% to 7.0%,) and in Latin America and the Caribbean (from 6.8% to 10.1%) the rates increased by something like 50%.

Another significant effect of the “triple crisis” was on the current account result and thus on the external financing needs of EMDEs. In this regard, the Brazilian economy, a net exporter of commodities, registered a favorable evolution: the current account deficit (CAD) decreased by almost US$20 billion, equivalent to 0.8% of GDP. Additionally, in Jan–Sep'22, the net inflow of foreign direct investment (5.1% of GDP) was more than enough to finance this deficit. 

However, the decrease in Brazil's current account deficit, when measured as a percentage of GDP, was smaller than that recorded for the average of Latin America and the Caribbean (from 2.2% to 1.2%) and for Argentina and Mexico, which started to record a current account surplus equivalent to 0.6% and 0.3% of GDP, respectively, as did the set of EMDEs (surplus of 0.9% of GDP in 2020–2022). 

Due to actions to combat the economic effects of the “triple crisis” and the slowdown in economic activity in most countries, there was a deterioration in public finances in both advanced economies (AEs) and in emerging and developing economies (EMDEs). 

In Brazil, although the countercyclical fiscal policy was relatively expressive in 2020, the deterioration of the fiscal result—from 6.9% of GDP in 2017–2019 to 7.9% of GDP in 2020–2022—was lower than in the average of EMDEs and in the regional average of Latin America and the Caribbean, whose primary deficits in relation to GDP have practically doubled from one three-year period to the other. The Brazilian fiscal space, however, was already much narrower than in other countries before the “triple crisis.”

The worsening of the "public debt as a percentage of GDP" indicator was also not significant in relative terms. Although with a debt significantly higher than the other EMDEs, our public debt/GDP ratio rose from 85.7% in the 2017–2019 average to 93.3% in 2020–2022, while in the aggregate of EMDEs and in the case of the United States it rose by about 1/5, to 63.9% of GDP and to 128.3% of GDP, respectively.

The full text is available in Portuguese.