At the end of 2020, the world expectation was that the year 2021 would be a year of economic recovery, with the advance of vaccination against Covid-19. But the scenario did not turn out as expected. The year had a series of crises, which affected multiple sectors of the economies of Brazil and the world.
Most of them are linked to one word: scarcity. The drop in production of a number of products in the pandemic has met intense demand as economies reopened. The result was a mismatch that raised prices and led to a shortage of some products.
The consequence involves another widely used word in 2021: inflation. The rise in prices was a global phenomenon this year, reducing the population’s purchasing power and hindering the economic recovery.
With the expectation that the scenario of scarcity and mismatch between supply and demand will continue for at least part of 2022, global inflation should persist next year, as well as the prospect of higher interest rates, slowing down the international economy.
THE CNN Brasil Business brought together the main crises that the world economy faced in 2021, ranging from the energy crises in countries like China and Brazil even the effects of the lack of chips, with a lack of electronic products in the U.S. Check out:
Energy
Three major world economies have gone through energy crises practically at the same time in 2021. Brazil, China and Europe they had to deal with a rise in energy prices, which reverberated to both consumers and producers and affected the global economy.
In the case of Brazil, the energy crisis is linked to worst drought in over 90 years, which particularly affected the Southeast and Midwest regions, which concentrate the main hydroelectric plants in the country.
The Brazilian electricity matrix is ​​highly dependent on hydroelectric plants, and the low level in the reservoirs required the search for alternative energy generation to avoid blackouts. Despite the growth of renewable sources, especially solar and wind, the big response was an increase in the use of power plants thermoelectric. The operation of them, however, is more expensive, and the electricity bills went up to defray this use.
In China, the energy crisis is linked to the environment, but not directly. THE coal it is still the main source of energy in the country, responsible for almost 60% of the generation. The Chinese government decided, however, to intensify efforts to reduce emissions of polluting gases and, therefore, curb the use of coal.
Mines were closed and export and ore use quotas were reduced. The problem is that the country has not been able to supply all of its energy demand with renewable sources alone. China even went through blackouts in some regions, until the government allowed a resumption of the use of coal. At the same time, the purchase of natural gas to generate energy increased.
And the measure is linked to energy problems in Europe. On the mainland, gas is used not only to generate energy, but also for heating. The region was also undergoing a reopening, and demand for gas rose.
However, in addition to high demand from China, supply levels from Russia, which account for 40% of gas consumed on the continent, have fallen, due to political reasons, according to some countries.
Combined with lower output from European wind farms, gas prices soared.
The reflexes in all three cases involve a rise in the electricity bill, affecting families, and also in production costs. China, for example, registered in October the highest producer inflation in nearly 25 years, and Brazil is also with high inflationary levels.
Petroleum
Still talking about energy, oil was a source of headache for several countries during the year. The Organization of Petroleum Exporting Countries and its allies, Opep +, reduced the production of the commodity in 2020 due to the pandemic, with a barrel reaching around US$ 40.
In 2021, with the resumption, the organization was expected to return to pre-pandemic production levels, but this did not happen. With demand greater than supply, prices soared, reaching nearly $90 a barrel. In the year, the high was 60%.
The main consequence for countries is in the prices of fuels, petroleum products. Prices soared around the world and, in some cases, other factors made the situation worse.
In Brazil, the dollar valued with political and fiscal uncertainties further increased the rise of fuels, as oil is quoted in the US currency. This increase worsened the inflationary scenario, even more so due to the country’s dependence on road transport.
In the United Kingdom, the lack of truck drivers – a consequence of leaving the European Union and the pandemic – led to a lack of fuel at some stations, making the product even more expensive.
Oil-dependent countries such as the United States, Japan, China and India tried to unite to pressure OPEC+ to increase the supply of the commodity and reduce prices. The main measure was the release of your strategic reserves of the commodity. The attempt, however, failed. OPEC+ maintained its projection of gradually resuming production only in 2022.
Evergrande
China’s real estate sector accounts for about 1/3 of the Gross Domestic Product (START) from the country. Analysts have been pointing for years to the possibility of a bubble in the sector, with high prices and an offer exceeding demand, and that its burst could generate a global economic crisis at the levels of 2008.
And by 2021, many thought that prediction could come true. Largest company in the sector, the Evergrande is facing problems to pay off the more than $300 billion in debt liabilities, with the potential for default and bankruptcy of the company due to lack of resources.
The Chinese government has restricted access to credit for developers this year, claiming they would be excessively speculative. But that hampered Evergrande’s ability to pay debts and close its accounts.
As the company communicated the situation to the market, the shares of Evergrande, other Chinese developers and stock exchanges in several countries tumbled in fear of a new global crisis.
Since then, Evergrande has undergone a state intervention to guide restructuring, negotiating new terms for debt payments. For experts, the situation in the sector – even with smaller companies closing – is not likely to spread globally, as in 2008 with the US housing bubble, and the prospect helped to calm investors.
Even so, the scenario has hurt the Chinese real estate sector, and the effects involve a slowdown in China’s economy, predicted for 2021 and 2022, until there is a full recovery.
Chips
A Asia is currently the main producer of chips for semiconductors, equipment used in the manufacture of various electronic products, from cars to smartphones. However, factories on the continent had to close temporarily due to the pandemic and some climatic factors.
The drop in production began in 2020, but extended into 2021, as some countries on the continent have stricter lockdown policies. At the same time, demand for electronics increased both during the pandemic and amidst the reopening.
The scenario created, therefore, was one of a shortage of chips. The lack caused several companies to temporarily suspend production, in case of some automakers in Brazil.
At the same time, lower production led to a reduced supply of products, and prices rose. The forecast of chip makers, assemblers and electronics producers is that the situation will only be regularized in 2022, when production should normalize in Asia and investments in new factories will show their first results.
Ever Given and Containers
Maritime transport is essential for global commerce, being responsible for the transport of a number of products. THE Suez Canal, located in Egypt, facilitates navigation between Europe and Asia, and 12% of world trade passes through it.
In March of this year, he was paralyzed for a week, when the ship Ever Given ran aground in the channel and made it impossible for other vessels to pass through. The period may seem short, but it has delayed delivery of a number of products, destabilized transport chains and affected the logistical planning of a number of sectors.
In this sense, some experts point out that the maritime transport sector has not fully recovered, and freight prices remain high, even if lower compared to the March high.
Another problem for the sector is the container price. Essential for maritime transport, the problem is not in smaller production, but in distribution. Circulation restrictions have left many containers stuck in ports in some countries, far from those in other countries with a demand for transport.
This imbalance occurred just as the economies of several countries reopened, as well as trade relations. With scarcity right in the areas with the greatest demand, container rental prices soared, as did shipping freight, making both imports and exports more expensive. The expectation is that the sector will be able to reorganize and redistribute containers in 2022.
new variants
Even though it is a health crisis, the effects of the Covid-19 pandemic encompass the economy. Carrying out lockdowns, necessary to prevent the spread of the virus and the increase in deaths and cases, impacts economic activity and production.
Vaccination, intensified in 2021, allowed a reopening in several countries, but news about new variants, initially with unknown potential, end up bringing instability and uncertainty to the markets.
The first news about variants Delta e Omicron, for example, led to the fall of world stock exchanges, with fears of the need for new closings. According to scientists, advancing vaccination globally is essential to reduce the chance of new variants emerging, but until then, news related to the pandemic they must still mess with markets and economies.
Inflation
Together, all these crises generate a new one, that of global inflation. The latest projection of the International Monetary Fund (IMF), from October, estimates that most countries in the G20, the 20 largest economies in the world, will end the year with higher inflation than 2019, before the pandemic.
The inflationary picture involves an erosion of the population’s purchasing power, and hinders the recovery of economies. The most common strategy to fight inflation is to raise the interest rate of the country, something that has already started to be done by most emerging countries, such as Brazil, and by some developed ones, with others already forecasting increases in 2022.
However, the control that the interest rate can exert on inflation involves slowing down economic activity and population consumption. As a result, the combination of inflation and high interest rates should further worsen the economic scenario for countries next year.
In general, analysts’ perspective is that most of the causes of crises in 2021 should be resolved in 2022. Many of the countries that were economically affected by the pandemic are also expected to end the year with growth in their GDPs, according to the IMF, showing that the problems were not enough to stop the resumption.
However, it is not known when all the problems in supply chains will be solved, or if new crises may arise due to climatic factors or new variants of the coronavirus, and even new pandemics. As a result, the scenario for next year still brings uncertainties and challenges that the world economy will have to face.
Reference: CNN Brasil
I am Sophia william, author of World Stock Market. I have a degree in journalism from the University of Missouri and I have worked as a reporter for several news websites. I have a passion for writing and informing people about the latest news and events happening in the world. I strive to be accurate and unbiased in my reporting, and I hope to provide readers with valuable information that they can use to make informed decisions.
