Despite new infections and fatalities remaining high, the economy has started to recover across a wide range of sectors. GDP growth is expected to be 2.6% in 2021 and 2.2% in 2022, but activity will still fall short of pre-pandemic levels by late 2022. Inflation will remain below target and high liquidity provision, including through record-low interest rates, will support investment. Fiscal vulnerabilities have been exacerbated by the necessary policy response and public debt has risen. A failure to continue structural reform progress could hold back investment and future growth.
The strong fiscal and monetary policy response managed to prevent a sharper economic contraction. A temporary emergency benefit has supported over 67 million low-income households, cushioning the impact on household incomes and poverty. As the recovery will take time and some jobs may not return, well-targeted improvements in social protection would be warranted. Reallocating some current expenditures and raising spending efficiency would allow such improvements to be financed, while simultaneously resuming the fiscal adjustment underway before the pandemic. Structural reforms to enhance domestic and external competition and improve the investment climate could raise productivity, while better professional training would allow more people to seize new economic opportunities.
Strong growth and remarkable social progress over the past two decades have made Brazil one of the world’s leading economies, despite the deep recession that the economy is now emerging from. Macroeconomic stability, favourable demographic trends and external conditions allowed an expansion of private and public consumption, in the context of solid employment and wage growth. A buoyant labour market coupled with improving access to education and extensive transfer programmes allowed millions of Brazilians to move into better jobs and attain better living standards. As 25 million Brazilians have escaped poverty since 2003, growth has become much more inclusive. These are remarkable achievements..