A Reversal in Shared Prosperity in Brazil

Abstract

The COVID-19 pandemic arrived in Brazil while the poorest 40 percent of the population was still recovering from the 2014-16 crisis. After boosting Latin America's reduction in poverty and inequality for the previous decade, Brazil's 2014-16 crisis and recovery are a stark departure from the previous decade as Brazil's inclusive growth turned significantly regressive. As millions of jobs were lost, Brazil's expansive social protection system was unable to effectively serve as a countercyclical protection system. This note analyses the recently released household data from 2012 through 2019 to better understand the severity of the 2014-16 crisis across income groups, as well as the uneven and slow recovery experienced following this crisis 2. The analysis shows that, during the domestic 2014-16 crisis, Brazil was unable to replicate its earlier successful protection of welfare as over 4.6 million Brazilians fell into extreme poverty between 2014 and 2017. Poverty rates grew from 22.8 percent in 2014 to 23.8 percent in 2016, while extreme poverty grew from 5.6 percent to 7.7 percent between 2014 and 2017. As of 2019 the recovery had yet to reach the poorest-this tendency of crisis-level poverty rates to resist the recovery is found throughout the five regions of Brazil until 2018. As of 2019, the income of the poorest 40 percent remained below its pre-crisis level. A sharp reversal in shared prosperity 3 during the crisis and regressive income growth has fueled the increase in poverty and inequality. Between 2014 and 2019 the income of the poorest 40 percent fell at an annualized rate of 1.4 percent. During this period, the income of the average Brazilian grew by 0.3 percent per year. From its lowest levels since the twenty-first century, inequality rose sharply in 2016, when inequality grew by 1.5 Gini points in one year-the largest single year jump in inequality since at least the early 1990s-and continued to grow until 2018. All told, the Gini coefficient grew from a low of 52.5 in 2015 to 55.0 in 2018. If income growth during this period had been evenly spread 1 This brief includes both internationally comparable indicators and indicators based on the official income aggregate, as defined by IBGE, that are not internationally comparable. 2 Due to a methodological change in the survey series published by IBGE, there has been a limited understanding of the full impact of the 2014-16 economic crisis in Brazil. In October 2019, IBGE published the comparable income series from 2012 through 2018, allowing for a first look at the poverty, inequality, and shared prosperity trends during this critical period. The data for 2019 were published in May 2020. 3 Shared prosperity is an indicator defined as the income growth of the poorest 40 percent.

Local Financial Institutions and Income Inequality: Evidence from Brazil's Credit Cooperative Movement

“…Although the initial slowdown of growth in 2014, which tipped the Brazilian economy into a technical recession, was largely attributed to a decline in global commodity prices (e.g. Ciaschi et al., 2020: 3), this can be viewed as distinct from the more fundamental economic weaknesses and internal political issues that worsened the country's prolonged recession between 2014 and 2016, with its slowest economic recovery on record (Carvalho, 2018). However, the fall in global commodity prices contributed to a balance of payments problem in 2014, significant capital outflows and a recognized currency crisis in mid‐2015 (e.g.…”

“…Laeven and Valencia, 2020; Nguyen et al., 2022). Currency depreciation was relatively severe during 2014 and 2015, fuelling higher inflation (Ciaschi et al., 2020). This encouraged further interest rate hikes (from 7.25 per cent in March 2013 to 14.25 per cent in September 2016), as the Central Bank of Brazil tried to tame inflation and restore confidence in financial markets (OECD, 2020b: 2).…”