The economics of a second Covid-19 wave in Brazil

</p> <p>These findings are particularly worrying, as analysts have conditioned any hope of a reasonable economic recovery in Brazil to the country avoiding a second Covid-19 wave.</p> <p>According to data from the Organization for Economic Cooperation and Development (OECD), a second wave of Covid-19 cases would <a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/06/10/second-coronavirus-wave-brazilian-gdp-plunge-oecd/">worsen Brazil’s expected GDP contraction</a> from -7.4 percent to a staggering -9.1 percent — almost double the expected global GDP decline of -4.9 percent, following estimates from the International Monetary Fund.&nbsp;</p> <p>Yet, for many economists, the Brazilian economy already faced its worst moment back in April when isolation measures and fears over how to cope with the pandemic took hold nationwide. As previously covered by <strong>The Brazilian Report</strong>, both the services and industry sectors — together making up roughly 80 percent of Brazil’s GDP — recorded their worst figures since the beginning of the century, falling 11.7 and 18.8 percent respectively.&nbsp;</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3265401" data-url="https://flo.uri.sh/visualisation/3265401/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>“The rock bottom moment [for the economy] was in April. It was the worst month for retail sales in [the country’s history]. We started quarantining during the second half of March in most of Brazil and people were disoriented without any references on how to protect themselves and prevent infection,” said Guilherme Dietze, economic advisor of the São Paulo Commerce Federation (Fecomércio), in an interview with <strong>The Brazilian Report</strong>.</p> <p>“[Now with the reopening], we expect that the last quarter of the year will see an increase [in economic activity] in São Paulo or even in the country as a whole, with more flexible social distancing.”</p> <p>“Obviously, protective measures such as wearing masks in public and using hand sanitizers will continue. Nevertheless, we will have a situation where hospital beds are less occupied, and people will be allowed to go outside. This will give certain confidence to customers to increase their spending,” he added.</p> <h2>A second wave disaster</h2> <p>Yet, achieving this scenario hinges solely on lowering and maintaining Covid-19 spread levels at lower figures. If cases spike once more — as is <a href="https://educacao.uol.com.br/noticias/2020/07/22/volta-as-aulas-e-risco-a-mais-para-93-milhoes-de-adultos-diz-fiocruz.htm?utm_campaign=resumo-do-dia-edicao-da-manha&amp;utm_content=hyperlink-texto&amp;utm_medium=email&amp;utm_source=newsletter">suggested by data</a> from the Oswaldo Cruz Foundation — and states or municipalities are forced back into strict isolation regimes, the results could bring a new set of devastating effects to the economy.&nbsp;</p> <p>This time, instead of having an economic downfall springing primarily from a lack of demand for market activity, an unsuccessful return to business could be the final straw for many companies already struggling to continue in the market since the start of the pandemic.&nbsp;</p> <p>“People, and businesspeople mainly, have a certain linear expectation that things tend to improve and that the worst is behind us. If this expectation is unfounded and all of a sudden isolation measures begin tightening up again (&#8230;) many businessmen might give up on their businesses,” Josilmar Cordenonssi, Economy Professor at Mackenzie Presbyterian University, told <strong>The Brazilian Report</strong>.</p> <p>“They will close or start firing employees because it is too big of a psychological pressure [to deal with subsequent market downfalls]. Oftentimes, they will hold onto to that hope that there is a tendency to improve, thus, when you have this sort of frustration, it can have a steep cost.”</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3175453" data-url="https://flo.uri.sh/visualisation/3175453/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p>Small and medium enterprises (SMEs) will be far more vulnerable to closing for good, as dwindling financial resources and smaller consumer pools means they simply cannot afford several reopening attempts.&nbsp;</p> <p>According to data from the Brazilian Institute of Geography and Statistics (IBGE), at least 716,400 businesses have closed for good since the start of the pandemic, out of which 715,100 (99.8 percent) were SMEs, a figure that would only grow with failed reopenings in states and municipalities.&nbsp;</p> <p>A significant loss of businesses — even if a second wave is restricted to particular states and does not spread nationwide — could make it increasingly difficult for the Brazilian economy to fully recover from the Covid-19 pandemic. Were the country to be freed from the virus by a vaccine, for instance, the business structure to attend renewed consumer demands would no longer be in place.&nbsp;</p> <p>“Let’s use the example of the air travel industry in Brazil [dominated by three airlines]. Airlines are essential not only for the transportation of people but for logistic purposes. If you disrupt two companies, you allow them to go bankrupt, you will have an absurd problem of supply because there will be only one company that will try to meet a huge demand [from the whole country],” Mr. Dietze said.&nbsp;</p> <p>As much as Brazil urgently needs to bring the economy back to its feet, the country will need to tread carefully during reopening, with isolation measures still very much in mind. Otherwise, the next fall might be too hard for many businesses to recover.