Industry numbers spark early 2020 pessimism in Brazil

. Feb 05, 2020
Industry numbers spark early 2020 pessimism in Brazil RHJ Photo and illustration/Shutterstock

We’re covering today the increasing (and awfully early) pessimism over 2020 after bad industry results. 5G rules in Brazil. Bolsonaro’s far-right roadshow in Europe.

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Are analysts giving up on 2020 already?

Expectations that 2020 would finally be the year in which Brazil would wrestle itself out of its slump

have been hit by a bucket of cold water after the country&#8217;s latest industrial output results. <a href="https://brazilian.report/money/2019/04/15/brazilian-industry-shrinking/">Underwhelming results</a> were expected after weak months in November and December, but the actual figure was much worse than analysts had anticipated: a 1.1-percent drop in industrial production.</p> <div class="flourish-embed" data-src="visualisation/1314951"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Why it matters.</strong> Poor industry results couldn&#8217;t have come at a worse moment. The global scenario is filled with uncertainty amid the coronavirus outbreak—which will <a href="https://brazilian.report/newsletters/brazil-daily/2020/01/28/brazilian-markets-suffer-coronavirus-frenzy/">slow down the Chinese economy</a>. Now, difficulties for Brazil have intensified.</p> <p><strong>Forecasts.</strong> Banks have already started to revise their growth projections for Brazil. In a report sent to clients on Tuesday, UBS slashed growth projections from 2.5 to 2.1 percent. On Monday, the Central Bank&#8217;s Focus Report—a weekly survey with top-rated investment firms—showed the median growth projection from Brazil went from 2.31 to 2.3 percent.</p> <div class="flourish-embed" data-src="visualisation/1192957"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>What held Brazil&#8217;s industry back.</strong> The Brumadinho dam collapse, in January 2019, ended up being the key factor for the overall numbers, with extractive industry sectors having their worst output since 2003. Food industries helped keep the results from dropping even further, thanks to the growth of the meat sector.</p> <p><strong>What now?</strong> The country now depends even more on the tax and administrative reforms. But those will not be easy, as the relationship between the government and Congress has been one of mistrust.</p> <hr class="wp-block-separator"/> <h2>Regulator sets 5G rules for Brazil</h2> <p>The Science and Technology Minister has published its rules for new radiofrequency auctions—including the much-awaited 5G networks. The most noteworthy point is that which forces telecoms companies to provide fast broadband connections (at least 4G) to regions with 600 residents or more—many of which either have slow networks or no connection at all.</p> <p><strong>When will 5G come to Brazil?</strong> The auction of 5G frequencies was scheduled for March—then pushed to the second half of the year. But it is safe to assume that it won&#8217;t take place before 2021.</p> <p><strong>Why it matters.</strong> 5G could be up to 100 times faster than 4G and will power the “Internet of Things” and Industry 4.0. As presented by the U.S. Senate Republican Committee, “the country that leads the world in the adoption of 5G technology will have a distinct technological, economic, and national security advantage over other countries.”</p> <p><strong>5G diplomacy.</strong> The push for 5G is the new battleground between the U.S. and China, and squeezes Brazil between its two main trading partners. Washington D.C. has tried to convince foreign governments to ban Chinese behemoth Huawei from providing their systems—being followed by Australia and Japan. Brazil has been coy on this matter, however.</p> <hr class="wp-block-separator"/> <h2>Bolsonaro to go on a far-right roadshow</h2> <p>After meeting with Polish Foreign Minister Jacek Czaputowicz, President Jair Bolsonaro said he will visit Poland and Hungary in 2020. The government says the trip aims at increasing Brazilian exports to the two countries—but the ideological aspect of it is impossible to miss. Both Poland and Hungary are ruled by <a href="https://foreignpolicy.com/2018/02/05/hungary-and-poland-arent-democratic-theyre-authoritarian/">textbook examples of illiberal parties</a>:</p> <ul><li>In Poland, the ruling Law and Justice party has made reshaping courts the <a href="https://www.nytimes.com/2019/12/21/world/europe/poland-judges-independent.html">center of its political agenda</a>. The European Union and human rights watchdogs have accused the government of eroding democracy and pushing Poland towards authoritarianism.</li><li>Hungarian Prime Minister Viktor Orbán has become known for his rigging the political system and promoting antisemitism. In a now-infamous 2014 speech, he said his country needs to part with Western dogmas, such as the notion that people are “free to do anything that does not violate another person’s freedom.”</li></ul> <p><strong>Why it matters.</strong> Brazilian diplomacy used to be pragmatic but that is no longer the case. &#8220;Foreign policy under Jair Bolsonaro has been guided by far-right ideology,&#8221; says Lucas Leite, an international relations professor at the São Paulo-based FAAP school.&nbsp;</p> <p><strong>MO. </strong>Jair Bolsonaro has shown he wants to replicate the modus operandi of Poland&#8217;s and Hungary&#8217;s ruling parties at home in Brazil. Last year, Congressman Eduardo Bolsonaro—who acts as a sort of unofficial foreign minister to his father—visited with Mr. Orbán, saying he learned about &#8220;how to deal with the press without being politically correct.&#8221;</p> <p><em>—with Lucas Berti</em></p> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <p><strong>Interest rates.</strong> At 6 pm (Brasilia time), the Central Bank&#8217;s Monetary Policy Committee is expected to announce a new cut in benchmark interest rates, from 4.5 to 4.25 percent. Markets will be particularly interested in the statement released by the bank—indicating whether further cuts are on the horizon, or if rates should remain stable in the upcoming months.</p> <p><strong>Coronavirus.</strong> After the House approved a bill setting up quarantine rules for Brazilians returning from China, the government announced it will send Air Force planes to repatriate Brazilian nationals in Wuhan—the city regarded as the epicenter of the coronavirus outbreak. The group, of at least 29 people, should arrive on Saturday. The bill also allows authorities to forcibly treat confirmed infections. So far, the Health Ministry is monitoring 13 suspected cases.</p> <p><strong>Corruption.</strong> The Economy Ministry has shelved an investigation into private bank Bradesco. In May 2016, the Federal Police indicted then-CEO and current chairman of the board Luiz Carlos Trabuco Cappi (and nine other people) for allegedly paying bribes to fiscal auditors in exchange for favorable rulings in Bradesco&#8217;s tax lawsuits—which amounted to BRL 4 billion. Both the criminal indictment and the Economy Ministry inquiry cited a lack of evidence.</p> <p><strong>Water.</strong> Some 67 neighborhoods in Rio de Janeiro and six cities in the Greater Rio Area are without water. State water company Cedae shut down a water treatment facility after finding high levels of detergent in their samples, likely dumped by a nearby factory. Rio has been in a <a href="https://brazilian.report/newsletters/brazil-daily/2020/01/15/donald-trump-oecd-promise-bolsonaro-brazil/">water crisis</a> for years. About 30 percent of collected water is wasted—with causes ranging from illegal connections to faulty hydrometers. At its current pace, the state could face a “water collapse” within 15 years.</p> <p><strong>Strike.</strong> As we reported on <a href="https://brazilian.report/newsletters/brazil-weekly/2020/02/03/reforms-brazil-congress-markets-coronavirus-inflation/">February 3</a>, over 7,000 oil industry workers have joined a nationwide strike—and Petrobras has taken their rebellious employees to court. The Superior Labor Court issued an injunction ordering unions to keep at least 90 percent of their employees working normally, or face a BRL 500,000 daily fine.

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