levels, but this also increased households’ dependence on public transfers. The un- BRAZIL Key conditions and even labor market impacts increased pre- existing vulnerability profiles as higher job challenges losses were concentrated in low-skilled and highly insecure jobs. As the power of Table 1 2021 Structural bottlenecks and lack of govern- supervisory bodies has recently weakened, Population, million 214.0 ment capacity to pass critical reforms led to illegal forms of forest exploitation have be- GDP, current US$ billion 1608.8 a meagre GDP average growth (0.3 percent) come more frequent. Increasing deforesta- GDP per capita, current US$ 7518.1 over the last decade. Despite favorable de- tion in the Amazon puts additional pres- a 1.7 International poverty rate ($1.9) mographic conditions, the contribution of sure on land-use emissions, the main a 4.3 labor to GDP decreased 0.1 percent on aver- source of GHG emission in Brazil. Lower middle-income poverty rate ($3.2) a 13.1 age. Productivity growth also stalled, most- Upper middle-income poverty rate ($5.5) Gini index a 48.9 ly due to a complex tax system, a cumber- School enrollment, primary (% gross) b 112.0 some business environment that discour- Life expectancy at birth, years b 75.9 aged entrepreneurship, slow human capital Recent developments accumulation, ineffective sectoral state in- Total GHG Emissions (mtCO2e) 2514.6 tervention policies, low savings, and com- GDP grew at 4.6 percent GDP in 2021, pro- Source: WDI, Macro Poverty Outlook, and official data. pression of public investment to accommo- pelled by a strong recovery of 4.7 percent a/ Most recent value (2020), 2011 PPPs. b/ Most recent WDI value (2019). date higher current spending and increas- in services, and thanks to the successful ing pension obligations. vaccination campaign (84.2 percent of the Improving fiscal sustainability is a critical population with at least one dose). While GDP grew 4.6 percent in 2021, thanks economic policy priority for Brazil. The industry grew strongly (4.5 percent), the long-term steady recurrent spending recovery was dragged down by shortage to strong services growth and a success- growth over the past 20 years has presented of inputs and higher production costs. ful vaccination campaign. Significant challenges. In response, the federal govern- The significant drop in poverty and in- downside risks remain in an uncertain ment adopted a primary expenditure ceil- equality rates from 2020 were short-lived. environment. The 2022 presidential elec- ing rule in 2016. Improvement in spending In 2021, labor force participation rates, efficiency and revenue collection are need- employment levels and the share of for- tion and the war in Ukraine are push- ed to put public debt on a solid downward mal workers had fallen below 2019 levels. ing up long-term yields, and the mone- trajectory, create fiscal space for investment, Unemployment rates returned to pre-pan- tary tightening to contain inflation is and maintain investor confidence. demic level in the last quarter of 2021, likely to depress growth in 2022. Pover- The COVID-19 pandemic gave Brazil one but they remain high (11.1 percent). La- ty rates are projected to stagnate in the of the highest tolls globally in terms of bor income may not fully replace the re- lives lost, but a rapid vaccine rollout since duction in government transfers – lead- medium-term, due to a slow labor mar- mid-2021 is supporting a return to normal- ing to higher poverty rates. A slower re- ket recovery. Productivity enhancing re- ity. The sizeable response implemented via turn to the labor force coupled with fewer forms are critical to accelerate growth social protection programs in 2020, al- job opportunities, have put female work- and safeguard fiscal sustainability. lowed the income of the bottom of the dis- ers and female-led households in a more tribution to surpass their pre-pandemic vulnerable position. FIGURE 1 Brazil / Evolution of Brazil’s GDP per activity sector FIGURE 2 Brazil / Actual and projected poverty rates and real private consumption per capita 2000 = 1 Poverty rate (%) Real private consumption per capita (constant LCU) 2.2 25 4200 Agriculture 4100 2.0 Services 20 Industry 4000 1.8 15 3900 1.6 3800 10 3700 1.4 3600 1.2 5 3500 1.0 0 3400 2012 2014 2016 2018 2020 2022 2024 0.8 International poverty rate Lower middle-income pov. rate 2000 2003 2006 2009 2012 2015 2018 2021 2024 Upper middle-income pov. rate Real priv. cons. pc Souce: World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 1 Apr 22 High commodity prices and the large de- 2024, and the public debt to GDP ratio is preciation of the Real stabilized the cur- expected to stabilize by 2025. The current rent account deficit in 2021, still financed Outlook account deficit is forecast to widen to 1.7 by net FDI inflows. Increasing food, fuel, percent of GDP in the medium-term, as and energy prices eroded households' GDP growth is expected to slow to 0.7 per- the growth in commodities prices decreas- purchasing power across the income dis- cent in 2022 and mildly accelerate until es and global demand normalizes. Robust tribution. As inflation reached 10.5 per- 2024 on the back of easing inflation and re- external inflows are expected to fully fi- cent in 12 months until February 2022, duced uncertainty with the end of the elec- nance this deficit. the Central Bank accelerated the pace of tions. Inflation is projected to fall in 2023 The scenario is subject to significant risks, monetary normalization, raising the inter- due to the dissipation of the commodities as concerns remain about anemic poten- est rate to 11.75 percent in March and sig- price shock and an aggressive monetary tial growth and slow policy reform mo- naling its willingness to continue mone- policy, reaching the central bank target of mentum. Mounting demand for public tary tightening. 3.0 percent in 2024. Poverty is expected to expenditures on the back of the upcom- Fiscal consolidation in 2021 was substan- have increased to 18.7 percent in 2021, as ing general elections in October 2022 puts tive, given the rollback of COVID-related the coverage and benefits of emergency pressure on the spending rule, and polit- expenses and a higher-than-expected tax transfers were substantially reduced and ical instability persists, further deteriorat- collection. The primary balance improved unemployment rates remained high. In ing economic outlook for 2022. The war from a deficit of 9.5 percent of GDP in 2022, about 18 million low-income house- in Ukraine is causing higher commodi- 2020 to a surplus of 0.7 percent of GDP holds will be supported by the new ties prices and supply shortages that can in 2021. Subnational governments con- Auxílio Brasil program, however, complete trigger additional exchange rate deprecia- tributed to this balance with a surplus of elimination of the emergency transfers in tions and inflation pressures in Brazil, in- 1.1 percent of GDP, while the central gov- addition to sustained inflation may lead ducing a more aggressive monetary pol- ernment had a deficit of 0.4 percent. The poverty rates to stay largely stagnant in icy, reducing growth and increasing general government's gross debt declined the coming years. A gradual fiscal consoli- poverty. However, low external debt and to 80.3 percent of GDP in 2021, a 9.0 per- dation based on the fiscal rule is expected high international reserves provide solid centage points reduction. to result in a primary balance surplus by buffers to weather shocks. TABLE 2 Brazil / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021 2022e 2023f 2024f Real GDP growth, at constant market prices 1.2 -3.9 4.6 0.7 1.3 2.0 Private Consumption 2.6 -5.4 3.6 1.0 1.5 2.0 Government Consumption -0.5 -4.5 2.0 0.0 0.0 0.0 Gross Fixed Capital Investment 4.0 -0.5 17.2 -0.5 1.8 3.9 Exports, Goods and Services -2.6 -1.8 5.8 0.5 1.5 2.0 Imports, Goods and Services 1.3 -9.8 12.4 -0.5 2.0 3.0 Real GDP growth, at constant factor prices 1.0 -3.5 4.3 0.7 1.3 2.0 Agriculture 0.4 3.8 -0.2 2.5 2.0 2.0 Industry -0.7 -3.4 4.5 0.3 0.7 1.1 Services 1.5 -4.3 4.7 0.6 1.4 2.3 Inflation (Consumer Price Index) 3.7 3.2 8.3 8.5 4.5 3.3 Current Account Balance (% of GDP) -3.5 -1.7 -1.7 -1.3 -1.3 -1.7 Net Foreign Direct Investment (% of GDP) 2.5 2.8 1.7 2.3 2.3 2.3 Fiscal Balance (% of GDP) -6.6 -14.2 -4.3 -8.3 -7.6 -5.2 Debt (% of GDP) 74.4 88.6 80.3 82.7 84.1 84.7 Primary Balance (% of GDP) -1.0 -9.5 0.7 -0.5 0.0 0.5 a,b International poverty rate ($1.9 in 2011 PPP) 4.9 1.7 3.7 4.4 4.4 4.5 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 9.5 4.3 8.7 8.5 8.5 8.5 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 20.6 13.1 18.7 18.8 18.7 18.5 GHG emissions growth (mtCO2e) 9.5 3.0 11.7 -5.6 -5.2 -3.5 Energy related GHG emissions (% of total) 18.9 17.7 16.6 17.5 18.2 18.8 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on SEDLAC harmonization, using 2017-PNADC-E1, 2019-PNADC-E1, and 2020-PNADC-E5. Actual data: 2020. Nowcast: 2021. Forecasts are from 2022 to 2024. b/ Projection using point-to-point elasticity (2017-2019) with pass-through = 0.87 based on private consumption per capita in constant LCU. Estimates for 2021-2022 based on microsimulations to reflect changes in government transfer programs. MPO 2 Apr 22