![]() Labor income may not fully replace the reduction in government transfers – leading to higher poverty rates. Unemployment rates returned to pre-pandemic level in the last quarter of 2021, but they remain high. In 2021, labor force participation rates, employment levels and the share of formal workers fell below 2019 levels. The significant drop in poverty and inequality rates from 2020 was short-lived. Restoring fiscal sustainability still represents the most urgent economic challenge for Brazil, despite the ongoing fiscal consolidation achieved throughout 2021. Additionally, concerns remain about anemic potential growth and slow policy reform momentum. The global economic backdrop further weighed on Brazil’s recovery, including inflation and rising policy rates-both in Brazil and in the world-and supply bottlenecks related to the ongoing war in Ukraine, causing commodities prices to soar and thus further reinforcing the inflation pressures (8,73 percent in August 2022). In 2022, significant downside risks remain in this highly uncertain environment. The uneven labor market impacts increased preexisting vulnerability profiles as higher job losses were concentrated in low-skilled and highly insecure jobs, though Brazil's labor market is displaying significant signs of recovery, with the unemployment rate reaching 8.9 percent as of September 2022. The sizeable countercyclical fiscal response implemented via social protection programs in 2020 mitigated the impact of the pandemic on poverty, but this also increased households’ dependence on public transfers and raised the primary deficit and the Government's Gross Debt. As of September 2022, Brazil had applied the first dose of the vaccine to 86.8 percent of the population, and 79.4 percent of the population has a complete initial vaccination protocol.Īfter a pandemic-induced recession in 2020 (-3.9 percent y/y), the economy bounced back in 2021 (+4.6 percent y/y), on the back of the services sector. The COVID-19 pandemic gave Brazil one of the highest tolls globally in terms of lives lost, but a rapid vaccine rollout since mid-2021 is supporting a return to normality. Productivity growth is weak, due to a complex tax system, a cumbersome business environment that discourages entrepreneurship, slow human capital accumulation, ineffective sectoral state intervention policies, low savings, and compression of public investment to accommodate higher current spending and increasing pension obligations. In Brazil, structural bottlenecks led to a meagre GDP average growth (0.3 percent) over the last decade, despite favorable demographic conditions. ![]()
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