The pandemic has sped up certain trends that have a strong effect on the world economy: shrinking of the consumer class, increase in extreme poverty and inequality, and an aging population.
In Brazil, the effects are exacerbated by populism, which destroys the confidence of foreign and local private sector investors. There is a need to mobilize civil society to achieve reforms that are essential for recovery of the economy, and to support local governments and the third sector – which have been acting effectively on emergency fronts in combating the Covid-19 crisis.
A study by World Data Lab shows the impact of Covid 19 on world consumption. The consuming class lost 140 million people in 2020: in South America, strongly led by a fall in consumption in Brazil, it lost an estimated 8 million.
Although various studies indicate rapid economic recovery in 2021, expenditure on consumption fell by 4 trillion dollars from 2019 to 2020, and is expected to take at least 10 years to return to its 1919 level.
Consumers will be older
The pandemic has accelerated trends that were already noticed before it came. Indications are that ‘the new normal’ will have three important changes. First, new consumers will have a different profile. In contrast to the millennials, strong consumers of goods and services, the new generation is more parsimonious. Instead of consuming, young people want to share. Consumption will grow more strongly in the older generation: the ‘grays’ will become an important segment of consumers.
Second, the Covid-19 pandemic has caused a resurgence of extreme poverty in the world. According to World Bank figures, the number of people living in extreme poverty (i.e. for US$1.90 per day, or less) worldwide is likely to rise by between 40 and 60 million people – the first time it has risen since 1998. To combat extreme poverty will call for major efforts and coordination of government and multilateral institutions to reverse this tragic numerical trend.
A world more unequal
Third, the disparity of income between rich and poor will be the center of the political agenda. It is not enough to ensure freedom of markets and fair competition; it will be necessary to resuscitate the principle of equality of opportunity. The world has become more unequal. Access to good jobs and good business opportunities has become almost a monopoly of people who are well off, who had access to the best universities, live in the best districts, and mix with the most influential people in politics, the market and knowledge.
Challenge for Brazil
Brazil faces a massive challenge in the post-Covid world.
Populism exacerbates its long-standing problems: by mixing (necessary) emergency spending on combating the pandemic with irresponsible increases in public spending to please state corporatism, the country is heading for the fiscal precipice.
By losing the confidence of the international community and private-sector investors, it lets hundreds of billions of dollars in investment – which could resuscitate its economy, and employment – slip through its fingers. Finally, this scenario takes place at a moment when extreme inequality is growing again, the middle class is losing income, unemployment reaches a record level, and the country is growing older before getting richer.
To escape from this trap, Brazil will have to maintain the mobilization of civil society, local governments and the third sector – the combination which has in fact been acting, fast and effectively, in exemplary emergency work to combat the effects of Covid-19.
This union will have to be preserved after the pandemic, to defend democracy, pressure the government to resume passage of reforms to the state, and show the world that Brazil cannot be simply summed up by reference to the Bolsonaro government. There is life – and there are opportunities – outside of Brasília.