Economists and banks, however, warn that it depends on the duration of the conflict
The Brazilian economy is little exposed to the Russia-Ukraine war and is likely to suffer little impact, at least for now. This scenario, however, will only be confirmed if the conflict does not spread to other European countries, economists and banks told Valor.
For the head of economic research in Latin America at Goldman Sachs, Alberto Ramos, the fastest impact will be seen in inflation via commodities, and not in growth. “The first quarter will still be very much influenced by the omicron dynamics, which affected activity in January and there was a small rebound in February,” he said.
“Potentially, the implication [of the Russia-Ukraine conflict] will be to backfire a bit on the inflationary process and make the Central Bank more conservative because of the impact on commodity prices,” he added.
“Brazil’s trade levels with Russia and Ukraine are quite limited. The supply of fertilizer for the agribusiness can be impacted by this channel and put more pressure on food prices and energy prices with oil above $100. It means more pressure on Petrobras. But the impact, I say it again, is more immediate on inflation than on growth. We are already in March, there is not much more to go for the first quarter,” says Mr. Ramos.
A report by Dutch bank Rabobank goes in the same vein. The economists at the financial firm note that with the exception of the fertilizer market, Brazil is little exposed to Russian supply or demand and believe that the military attack should only indirectly weigh on Brazilian activity.
The report entitled “A Russian cloud over Brazil,” says that everything depends on the duration of the conflict. The side effects of the war, says the bank, may come from energy prices and uncontrolled imported inflation, and the likelihood of higher interest rates.
With high inflation, Rabobank projects a Selic rate of up to 12.25% in the second quarter of this year, with a slowdown to 11.75% by the end of the year. But it warns that a prolonged conflict may delay the easing cycle.
In the evaluation of the chief economist of RPS Capital, Gabriel Leal de Barros, the prospect of increased public spending in Brazil, because of the elections, may end up offsetting the negative effect coming from the war in Russia. He recalls that states and municipalities have about R$180 billion in cash today, equivalent to 2% of GDP. “Some states are already spending more, giving salary raises for civil servants, and this move acts as a counterweight to the negative effect of the war on activity,” he said.
Source: Valor International