Brazilian GDP at pre-crisis levels?

. Nov 21, 2019
Brazilian GDP at pre-crisis levels? Gastronomic center in São Paulo. Photo: Robert Napiorkowski/Shutterstock

Good morning! We’re covering the positive (yet timid) signs of economic recovery in Brazil (GDP numbers). And a bill which would send Lula back to prison progresses in Congress. (This newsletter is for platinum subscribers only. Become one now!)

Brazilian GDP at pre-crisis levels? 

With lower interest rates,

Brazilians are having access to more credit and are beginning to consume more. Researchers at think tank <a href="">Fundação Getulio Vargas</a> estimate a 2-percent growth in family consumption this year. With benchmark interest rates expected to get even lower, predictions are better still for 2020, with consumption tipped to reach 2014 levels, before Brazil fell into recession.</p> <p><strong>Why it matters.</strong> Family consumption accounts for two-thirds of Brazil&#8217;s GDP.</p> <div class="flourish-embed" data-src="visualisation/966362"></div><script src=""></script> <p><strong>GDP growth not widespread.</strong> Retail and services are sectors that have observed substantial improvements in 2019. The labor-intensive construction sector is also showing signs of a recovery, albeit a slow one. However, things remain bleak for Brazil&#8217;s industry—which continues to shrink and hemorrhage jobs.</p> <p><strong>Red flags.</strong> More access to credit in a still-sluggish economy could further bury Brazilians into debt. The country currently has 63 million debtors—and the extension of the gig economy offers little cushion for many workers.</p> <p>As a bid to limit this issue, the Central Bank and National Federation of Banks will sign a memorandum of understanding today pledging to develop financial education actions—having debt renegotiation as its core point. Central Bank chairman Roberto Campos Neto wants bank branches to extend their opening hours so that as many people as possible will be able to renegotiate their debts before the holiday season—the main occasion for retailers.</p> <div class="flourish-embed" data-src="visualisation/778354"></div><script src=""></script> <hr class="wp-block-separator"/> <h2>Income inequality stops the rot</h2> <p>After four years of the income disparity between the rich and the poor progressively getting bigger and bigger, Brazil&#8217;s work income inequality is seeing a slow descending trend after peaking in Q1 2019. Since Brazil fell into its longest-lasting economic crisis on record, Brazilians in almost every social group lost purchasing power—with the base of the financial pyramid suffering the most.</p> <div class="flourish-embed" data-src="visualisation/966632"></div><script src=""></script> <p><strong>Why it matters.</strong> The commodities boom allowed Brazil to reduce extreme poverty levels through cash transfer programs. But 11 straight quarters of negative GDP growth pushed 6.2 million Brazilians below the poverty line.</p> <p><strong>Social unrest.</strong> Inequality, a major issue in Latin America, has been singled out as the leading reason for massive protests across the region—<a href="">especially in Chile</a>. Despite posting the best overall economic indicators for a Latin American nation, Chile is a deeply unequal society, with income concentration being higher than in Brazil, according to some experts, and the country having a lack of social protections.</p> <p><strong>Jobs, jobs, jobs. </strong>According to researcher Daniel Duque, responsible for the finding, the trend is explained by the gradual improvement of unemployment rates. When lower-income populations are able to re-enter the job market, inequality levels go down—even if it is only a slight decrease.</p> <hr class="wp-block-separator"/> <h2>House moves on bill that could send Lula back to prison</h2> <p>Yesterday, the lower house&#8217;s Constitution and Justice Committee approved—in a 50–12 vote—a bill that would allow prison sentences to be enforced before the exhaustion of all appeal routes. </p> <p><strong>Why it matters.</strong> Just weeks ago, the <a href="">Supreme Court ruled</a> that the &#8220;presumption of innocence&#8221; is a principle protected by the Constitution—and that prison sentences can only be enforced after a final and unappealable penal sentence.</p> <p><strong>Loophole.</strong> To avoid their proposal being struck down by Supreme Court justices, lawmakers have tried to find a loophole: changing the path criminal cases follow, eliminating some appeal options, and establishing the definition of a &#8220;final and unappealable penal sentence&#8221; as earlier in the process than today&#8217;s rules. Many members of Congress and legal scholars alike support the change, as superior courts don&#8217;t hold trials on the merit of cases—only on how the legal process was conducted.</p> <p>But that viewpoint is far from a consensus, and the matter will certainly end up in the Supreme Court—which often comes up with surprising verdicts.</p> <p><strong>Meanwhile.</strong> The Senate is simultaneously analyzing another bill that would alter Brazil&#8217;s penal code, allowing prison sentences to be enforced after a first failed appeal.</p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Pinochet.</strong> After a request from a member of the far-right Social Liberal Party (which President Jair Bolsonaro has just left), the São Paulo State Congress scheduled a special ceremony for December 10 (Human Rights Day, of all days) to celebrate the life of former Chilean dictator Augusto Pinochet—mentioned on the official schedule only as Augusto P. Ugarte. After the backlash, Speaker Cauê Macris canceled the event.&nbsp;</p> <p><strong>Food.</strong> The Supreme Court has annulled a Brasília state law forcing supermarkets to donate food products reaching their expiry dates to local charities. The justices considered that the law is unconstitutional, and infringed on the principle of free initiative.</p> <p><strong>Trade.</strong> After meeting with U.S. Secretary of Agriculture Sonny Perdue, Brazil&#8217;s Agriculture Minister Tereza Cristina said she is still waiting for Washington to lift a ban on Brazilian in natura beef—a process which is in its &#8220;final stage.&#8221; In June, the Brazilian government sent a report to prove the country is in compliance with U.S. sanitary rules. While Brazilian beef wouldn&#8217;t have a big footprint in the U.S., being accepted by one of the strictest food regulation agencies in the world would be a major boost.</p> <p><strong>Pesticides.</strong> A Federal Court in the state of Ceará suspended the licenses of 63 pesticides cleared by the federal government on September 17. The judge mentioned the substances&#8217; &#8220;high toxicity levels and risk&#8221; to food consumers. Since 2015, an increasing number of pesticides have been cleared in Brazil—a trend that has sharpened under President Jair Bolsonaro. In 2019, 325 substances have been approved; 25 percent of these pesticides are forbidden for use in the European Union.

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