A study by the Institute of Applied Economic Research (Ipea) indicates that the entry into force of the free trade agreement between Mercosur and the European Union tends to generate relevant gains for the Brazilian economy over time, with positive impacts on GDP, investments and the trade balance.
According to estimates, between 2024 and 2040 the treaty could cause an accumulated growth of 0.46% in Brazil’s GDP, equivalent to US$9.3 billion at constant 2023 prices, compared to a scenario without the agreement.
The survey also points out that, in relative terms, Brazil would be the biggest beneficiary within the South American bloc. In the same period, the European Union’s GDP would grow by just 0.06%, while the other Mercosur countries would increase by 0.20%.
Continues after advertising
The authors used as a reference data and projections from the International Monetary Fund for the years 2014 to 2026 and, from then on, replicated the growth rates observed in the last year of the series until 2040.
The estimates, however, were calculated at the beginning of 2024, before the most recent changes to the text of the agreement, especially in the agricultural sector.
Read more:
In the field of investments, the study projects an increase of 1.49% in Brazil in relation to the reference scenario. Once again, the Brazilian gain exceeds that estimated for the European Union, of 0.12%, and for the other Mercosur countries, of 0.41%.
For researchers, this result reflects the fact that the Brazilian economy is more diversified and capable of absorbing broader sectoral benefits from the reduction of trade barriers.
In terms of trade balance, the agreement would result in a net gain of US$302.6 million for Brazil. In the other Mercosur countries, the positive balance would be US$169.2 million, while the European Union would show an estimated drop of US$3.44 billion, as a combined effect of the tariff reductions and export quota concessions provided for in the treaty.
Continues after advertising
The simulations also detail the dynamics of trade exchanges over time. Brazilian imports would grow more intensely in the first years of the agreement, reaching a peak of US$12.8 billion in 2034, before falling back to US$11.3 billion in 2040.
Exports, in turn, would advance steadily until reaching an accumulated gain of US$11.6 billion at the end of the period.
This result arises from three main factors: the fall in import tariffs in the European Union; the increase in quantities exported in sectors benefiting from quotas granted by the European bloc; and the reduction in the domestic cost of inputs and capital goods, which would make Brazilian products more competitive on the international market.
Continues after advertising
Read more:
For the European Union, the study shows that imports would grow faster in the first years and would continue to advance more slowly after the first decade of the agreement, reaching a gain of 0.16% in 2040.
Exports would also increase, but without exceeding imports at any point, ending the period with an increase of 0.12%. In the other Mercosur countries, imports would rise in the first ten years, reaching a variation of 1.10% in 2034, before losing momentum and falling back to 0.92% in 2040.
Continues after advertising
Exports from these countries, on the other hand, would fall in the first six years, but would reverse the trajectory later, reaching growth of 0.97% at the end of the analyzed horizon.
“The benefit that Brazil would have from the agreement is greater than that of the Mercosur partners because the Brazilian economy is more diversified and would have more extensive gains in sectoral terms”, stated Fernando Ribeiro, planning and research technician at Ipea and one of the authors of the study, alongside Admir Junior and Weslem Faria.
According to him, the difference in relation to the European Union is also expected. “The EU’s economy is much larger than Brazil’s and, normally, when a large partner makes an agreement with a smaller one, the gains they have are proportionally smaller. So, it is natural that Mercosur and, in particular, Brazil, have proportionally greater benefits from the agreement”, he explained.
Continues after advertising
The simulations also indicate relevant effects on production and employment in Brazil. Almost all agribusiness sectors would show gains from the agreement, while losses would be concentrated in specific industrial segments, such as vehicles and auto parts, ferrous metals, clothing and accessories, metal products, textiles, pharmaceuticals, machinery and equipment, and electronics.
According to Ipea, this pattern reinforces the view that the agreement tends to favor sectors that are already competitive in international trade, while at the same time putting pressure on industrial areas more exposed to external competition.
