20210921-IMF-Brazil_Selected_Issues_17页_727kb

Brazil Selected Issues Summary

Core Content

This document analyzes Brazil's external sector dynamics and the impact of vaccination on mobility during the pandemic, focusing on how the country's current account (CA) responded to the 2020 recession and how this compares with past global recessions and epidemics.

Main Points

A. Brazil's External Sector in 2020

• Brazil's current account balance improved by 1.8% of GDP in 2020, aligning with its historical average.
• The improvement was mainly due to a significant decline in imports, driven by a strong real effective exchange rate (REER) depreciation and domestic lockdowns.
• Exports were less affected, particularly due to strong trade ties with China, which saw an increase in imports starting in April 2020.
• The goods and services balance improved, with a notable drop in the services deficit (around 0.5% of GDP).
• Investment to GDP remained relatively constant, while aggregate saving to GDP increased, contributing to a narrowing of the saving-investment balance.

B. Global Perspective on CA Adjustments During Past Recessions

• In non-commodity exporting economies, CA balances typically improve by 1-2% of GDP during recessions.
• Commodity exporters, however, do not see significant CA improvements due to their reliance on commodity prices.
• Brazil's CA response to recessions has averaged 2-3% of GDP, consistent with emerging market (EM) non-commodity trends, despite a large share of commodities in its exports.
• Internal and external imbalances, such as high public debt or persistent CA deficits, can lead to stronger and more persistent CA adjustments.
• During synchronized global recessions, CA improvements are smaller (around 1% of GDP) compared to idiosyncratic crises (over 2% of GDP).
• Epidemics and natural disasters can also dampen CA improvements, often through increased imports due to reduced domestic production.

C. The COVID-19 Shock: Is This Time Different?

• Despite the global and synchronized nature of the pandemic, Brazil's CA improvement in 2020 was close to historical averages.
• Factors that could have led to a muted response included high public debt and the economic impact of lockdowns.
• However, the CA balance improved by 1.8% of GDP, similar to past recessions.
• The main drivers of this improvement were:
  • A substantial increase in private saving (around 9% of GDP), higher than previous recessions.
  • Government transfers that boosted disposable income.
  • Reduced consumption opportunities due to lockdowns, especially in services and leisure sectors.
  • Precautionary motives due to high uncertainty and job losses.

Key Information

• Private Saving Surge: The unprecedented increase in private saving (9% of GDP) was key to the CA improvement.
• Government Support: Emergency support was large (around 4% of GDP) and broad-based, helping to offset income losses.
• Mobility and Infection Rates: Mobility is a critical factor in infection spread, and the model shows that reducing mobility can lower the number of infections and deaths.
• Vaccination Impact: Vaccination can reduce the transmission rate by about 50% and prevent deaths.
• Vaccination Scenarios:
  • Baseline: 75% of the population is expected to be fully vaccinated by January 2022.
  • Accelerated: Vaccination reaches 75% by December 2021.
  • Delayed: Vaccination reaches 75% by early 2023.
• Model Parameters:
  • β₀ = 0.15
  • βₛ = 0.067
  • λ = 0.028
  • γ = 0.17
  • θ = 0.12
  • μ = 1.47
  • ωᵢ = 0.5
  • δᵥ = 0.02473
  • δᵧ = 0.00069
  • sᵥ = 0.18
  • sᵧ = 0.82

Figures and Tables

• Figure 1: Shows the relationship between lockdown stringency and Brazil's trade in 2020.
• Figure 2: Compares CA responses across advanced economies (AEs), non-commodity EMs, and commodity EMs.
• Figure 3: Highlights how internal and external imbalances influence CA responses to recessions.
• Figure 4: Demonstrates the impact of global recessions and epidemics on CA balances.
• Figure 5: Compares Brazil's CA responses to past recessions and the 2020 crisis.
• Table 1: Lists the parameter values used in the SEIRD model for Brazil.

Conclusion

The 2020 CA improvement in Brazil was not significantly smaller than historical averages, largely due to a strong private saving response and a substantial decline in imports. While global crises tend to dampen CA improvements, the unique combination of factors in Brazil led to a CA adjustment similar to past recessions. The SEIRD model highlights the importance of vaccination in restoring mobility and reducing the spread of the virus, with implications for economic recovery. The document underscores the need for a rapid vaccination rollout to mitigate the economic impact of the pandemic.