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Could the coronavirus outbreak create a supply shortage in Brazil?
Natália Scalzaretto . Feb 27, 2020
Empty street in Chengdu, Sichuan (China). Fears of infections have led a big chunk of China’s workforce to stay at home—either by choice or government imposition. Photo: B.Zhou/Shutterstock
The 7-percent rout of the Brazilian financial markets after the Carnival break is the most tangible outcome of the economic havoc caused by the coronavirus outbreak in Brazil so far. While markets are known for anticipating economic trends, the effects of the public health emergency have not yet been felt on the real economy—and they may come in some surprising areas.
China is Brazil’s main trading partner and accounts for roughly 28 percent of Brazil’s total exports—mainly commodities such as iron ore, oil, and agricultural goods. Therefore, a Chinese slowdown will have a clear effect on these exporting sectors, potentially stunting Brazil’s GDP growth.
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<p>However, China is also Brazil’s main source of <em>imports</em>—especially industrialized goods. The impact on the <a href="https://brazilian.report/business/2019/04/03/economy-ministry-it-subsidies/">tech industry</a> may be the heaviest, as China accounts for 85 percent of Brazil’s imports of semiconductor devices, 53 percent of printed circuit boards and other components for telephony appliances, and 22 percent of integrated circuits and electronic microcircuits—including phone SIM cards.</p>
<p>A <a href="http://www.abinee.org.br/noticias/com183.htm">survey</a> among 50 companies of the electro-electronic sector carried out by the Brazilian Association of Electric and Electronic Industry (Abinee), released right before the Carnival holiday, found out that 57 percent were having trouble in receiving supplies from China—five percentage points more than the same survey two weeks ago. </p>
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<p>Also, 17 percent of the companies said they are unlikely to reach their first-quarter production targets, with an average underperformance of 22 percent. While 54 percent of companies still did not plan to interrupt their activities, “the decision depends on how long these supply issues linger,” said Abinee.</p>
<p>In an interview with newspaper <a href="https://economia.estadao.com.br/noticias/geral,epidemia-de-coronavirus-ja-prejudica-entrega-de-pecas-a-industrias-brasileiras,70003203844"><em>Estado de São Paulo</em></a>, president of the Brazilian Association of Electro-Electronic Manufacturers (Eletros), José Jorge do Nascimento, expressed concerns about the long-term effects of disruptions. “If the situation is not quickly normalized, there may be a shortage of inputs for production related to Mother’s Day,” which starts next month, according to the publication. </p>
<p>It is worth mentioning that Mother’s Day—scheduled for May 10 this year—is the second-most important calendar day for Brazilian retail. In 2019, Mother’s Day revenues increased 5 percent from the previous year to hit BRL 2.2 billion in e-commerce sales alone, <a href="https://economia.uol.com.br/empreendedorismo/noticias/redacao/2019/05/13/faturamento-e-commerce-dia-das-maes.htm">per Ebit Nielsen estimates</a>; overall figures measured by <a href="https://www.boavistaservicos.com.br/noticias/vendas-para-o-dia-das-maes-crescem-17-em-2019/">credit bureau Boa Vista SPC</a> point to an increase of 1.7 percent in sales versus 2018 levels. </p>
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<h2>Other areas affected by the outbreak</h2>
<p>Brazil is also reliant on China for other sectors that have a direct impact on the daily life of the population, such as textiles or inputs for medicines, and delays in shipping could disrupt the production of these products. </p>
<p>According to the Brazilian Association of Textile Retailers (ABVTEX), imports represent roughly 15 percent of the clothes purchased in Brazil, which diminishes the overall impact of the coronavirus outbreak. However, ABVTEX believes it is too soon to measure the extent of the repercussions, which also depends on China’s ability to react. </p>
<p>“If there are consequences, they will be felt by the end of the first half of the year and beginning of the second,” it said in an emailed statement to <strong>The Brazilian Report</strong>.
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