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Brazil is reopening its economy. Tell that to consumers

. Jun 05, 2020
consumers reopening economy The economy is reopening. But people are not consuming. Photo: Andréa Rêgo Barros/PCR

“While we don’t show society that we have controlled the disease and have a way out from it, any attempt of a way out will be bad, because fear will prevent you from treating the economy as a priority.” 

The warning, made by former Health Minister Nelson Teich in a videotaped April 22 cabinet meeting, turned out to be prescient. As seven Brazilian states begin lifting quarantine rules, consumption remains below average in all of them. In some, such as Southeast state Espírito Santo, demand will be less than 40 percent of pre-pandemic figures, according to industry leaders. 

</p> <p>A report by newspaper Folha de S.Paulo quotes business owners who are hopeful with the reopening. But the local association of retailers, FecomercioSP, expects sales to plunge 33 percent in June to just BRL 19 billion (USD 3.7 billion), as the opening will happen gradually amid a hostile economic environment. As we reported on our <a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/06/03/sao-paulo-retailers-could-face-worst-year-on-record/">Covid-19 Live Blog</a>, the association believes that São Paulo’s retail is about to face its worst year on record, with a 20-percent drop.</p> <p>Maurício Moura, a professor at George Washington University and chief executive officer at pollster Ideia Big Data, believes that consumers simply don&#8217;t trust the economy enough to spend their money.</p> <p>“It will be hard to retrieve the trust of consumers, it is a long process that will depend on the spread [of the virus]. And at least two-thirds of the population is fully aware that the problem is the coronavirus, not social isolation. Recovery will be more complex than simply opening everything up. It will also depend on income and trust levels,” he told <strong>The Brazilian Report</strong>.&nbsp;</p> <h2>In economy, we don&#8217;t trust</h2> <p>An analysis of the most <a href="http://www.cnc.org.br/editorias/economia/noticias/coronavirus-provoca-maior-queda-da-historia-na-intencao-de-consumo-das">recent data</a> on consumer trust by the National Confederation of Commerce shows how stark the impacts of Covid-19 have been. As of May, families’ intention to consume took a 13-percent nosedive from the previous month, the biggest drop on record. The family consumption index is at 81.7 points — far below the 100-point satisfaction level and the lowest since November 2017.&nbsp;</p> <p>Moreover, 70 percent of families believe this is a bad moment to buy durable goods, such as electronic appliances, electronics, cars, or real estate. Just over half say they intend to lower consumption in the following three months — the highest rate since October 2017.&nbsp;</p> <p>The pessimistic view is also reflecting on job market perspectives. For the first time, the majority of Brazilian families (51.5 percent) have a negative perception of their career perspectives, despite nearly 40 percent saying their income levels are on par with 2019. “These results show how uncertain families are regarding their professional future and represent the insecurity of Brazilians in the following months,” wrote economist Catarina Carneiro.</p> <h2>Brazilians lead the world in pessimism about the economy</h2> <p>New <a href="https://www.globalwebindex.com/hubfs/1.%20Coronavirus%20Research%20PDFs/GWI%20coronavirus%20findings%20May%202020%20-%20Multi-Market%20Research%20(Release%2010).pdf?utm_campaign=Coronavirus%20hub&amp;utm_source=Coronavirus-whitepaper-10">study</a> by marketing consultancy Global Web Index about consumer behavior in 20 countries shows that Brazil was the only country to see an increase in concern regarding the national situation since April. “Some 92 percent [of Brazilians] express concern about their national situation, giving further evidence that Latin America could become the new epicenter for the virus,” said the report. As a comparison, levels of concern dropped by 8 percentage points in Italy, formerly the world&#8217;s Covid-19 epicenter, to 74 percent.</p> <p>Also, optimism about overcoming the crisis fell 8 points to just 24 percent between April and May. Meanwhile, 56 percent of the country believes the outbreak will last for over six months. And while the majority of countries expect Covid-19 to be a heavy blow in the countries’ economy, 58 percent of Brazilians believe <a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/04/20/brazilians-lose-purchasing-power-covid-19-pandemic/">their own financial situation</a> will be hit hard by the epidemic. Only India, the Philippines, and South Africa reported higher levels of concern.&nbsp;</p> <p>Regarding consumption, 55 percent of Brazilians said they intend to cut day-to-day purchases, while nearly half will look for cheaper alternatives. Fifty-two percent intend to wait for sales and promotions, and 39 percent aim to cut subscriptions. Big purchases, such as cars, vacations, and home appliances, are out of the question for 80 percent.</p> <p>Danilo Cersosimo, Head of Public Affairs at consumer insights firm Behup, says his company&#8217;s data echoes that vision, as the insecurity towards income and employment interfere severely in purchasing habits.&nbsp;</p> <p>“When the pandemic is controlled, we’ll see improvement among those who have a job and income, but consumption will be negatively affected by the large part of the middle class and impoverished segments of the population,” he told <strong>The Brazilian Report</strong>, by email.</p> <h2>New trends</h2> <p>Brazilians also seem wary to go outside, after spending months in quarantine. Asked about when they’d return to go shopping after stores reopened, 39 percent said they wouldn’t “for some time” and 14 percent said they wouldn’t do it “for a long period of time.” While the percentage of people that said they would return to shops quickly after reopening rose from 34 percent in April to 35 percent in May, it is still the second-lowest level in the sample, behind only the Philippines. In the U.S., the current global epicenter, 44 percent of people want to return to shopping.&nbsp;</p> <p>Moreover, 48 percent of Brazilians expect they will keep <a href="https://brazilian.report/?s=ecommerce">purchasing goods online</a> after the end of the outbreak, which may have a significant negative impact for street stores and small businesses.</p> <p>For Mr. Cersosimo, “the practicality of online shopping and the fear of public gatherings may have an impact on e-commerce in the medium and long terms.” However, he believes it is too soon to say whether this trend will help to make consumers more conscious or rational in planning their purchases, for instance.

 
Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, she worked as an Editor for Trading News, the information division from the TradersClub investor community.

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