Latin America sliding into a deep recession, say banks

. Mar 19, 2020
Latin America sliding into a deep recession, say banks

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We’re covering the growing fears of recession in Latin America. Jair Bolsonaro mimicking Donald Trump. And the lack of control in Brazilian airports.

Recession up ahead for Brazil and Latin America


appears that the Covid-19 crisis has <em>finally</em> sunk in for the Brazilian government. Except for the Health Ministry, the administration had resisted going all-in with measures to prevent an economic collapse. But as awareness about the virus goes up, recession gets closer. That is what Gregory Daco, chief U.S. economist at Oxford Economics, calls the &#8220;Lockdown Paradox.&#8221; The steps to prevent a full-scale health emergency—such as closing shops, restricting transportation, or social distancing people from one another—are the very same that will drive countries to a recession.</p> <p><strong>Grim scenario.</strong> Most banks are slashing growth projections for Brazil and Latin America, forecasting negative growth in 2020. Goldman Sachs, the most pessimistic of them all, cut its <a href="">GDP prediction for Brazil</a> by 3.1 percentage points, to -0.9 percent. The bank says that the global economy shouldn&#8217;t head to a scenario worse than the 2008 financial crisis.</p> <ul><li>There is just too much uncertainty to say that, however. As Santander&#8217;s economist Maurício Oreng said during a conference call, &#8220;forecasts will be constantly revised from now on,&#8221; as conditions shift rapidly.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/1616974"><script src=""></script></div> <p><strong>Stimulus.</strong> In addition to <a href="">stimulus measures</a> announced on Tuesday, the Brazilian government plans to launch BRL 200 vouchers to financially support 18 million families of self-employed or informal workers that may require government assistance for three months. Overall, the “corona-voucher” will cost the government BRL 15 billion and depends on the Senate approving a declaration of a state of calamity, which it will vote on today.</p> <p><strong>Jobs.</strong> Companies will be allowed to reduce workers&#8217; hours and salaries by up to 50 percent. The move aims at avoiding layoffs, but it will further <a href="">reduce people&#8217;s purchasing power</a>—which has already been down since 2014.</p> <p><strong>Interest rates.</strong> The Central Bank drove Brazil&#8217;s benchmark interest rate to a new low, from 4.25 to 3.75 percent a year. No more cuts are expected—and the rate could even go up in 2020, as “additional monetary easing could become counterproductive.”</p> <ul><li>As the U.S. Dollar gains value against emerging currencies, the Central Bank announced it will use USD 31 billion for a temporary buyback of Brazilian foreign debt bonds. The last time it pulled such a move was in 2008.</li></ul> <p><strong>Why it matters.</strong> A new recession in Latin America will have serious political implications—especially for a president as polarizing as Jair Bolsonaro. He has been scolded for his erratic reaction to the crisis—and for a <a href="">second straight day</a>, Brazilians in big urban centers took to their windows, banging pots and shouting against his administration.</p> <figure class="wp-block-embed-twitter wp-block-embed is-type-rich is-provider-twitter"><div class="wp-block-embed__wrapper"> <blockquote class="twitter-tweet" data-width="550" data-dnt="true"><p lang="en" dir="ltr">In São Paulo&#39;s South Zone, people shout &quot;Bolsonaro out,&quot; and &quot;Beat it, scum.&quot; hey even have fireworks against the president. <a href=""></a></p>&mdash; Gustavo Ribeiro (@gnribeiro) <a href="">March 18, 2020</a></blockquote><script async src="" charset="utf-8"></script> </div></figure> <hr class="wp-block-separator"/> <h2>Mimicking Trump</h2> <p>Jair Bolsonaro and his family have recently copied a page from U.S. President Donald Trump&#8217;s playbook on how to deal with Covid-19: by going after Beijing. While Mr. Trump calls the novel coronavirus the &#8220;Chinese virus,&#8221; Congressman Eduardo Bolsonaro—the president&#8217;s son—has been even less subtle. He compared the outbreak to the Chernobyl disaster and said &#8220;it&#8217;s China&#8217;s fault&#8221; for hiding the true extent of the crisis for months.</p> <p><strong>Why it matters. </strong>As noted by Oliver Stuenkel, an international relations professor at Fundação Getulio Vargas: &#8220;Eduardo Bolsonaro&#8217;s attack against China is calculated and makes total sense: [it] diverts attention from the government&#8217;s incoherent response to the pandemic and mobilizes supporters against a common enemy. [He] will try to whip up anti-communist and nationalist sentiment.&#8221;</p> <p><strong>Reaction.</strong> The Chinese Embassy in Brasília reacted furiously on social media, saying Mr. Bolsonaro&#8217;s words were irresponsible and demanding an &#8220;immediate withdrawal and apology to the Chinese people.&#8221; It also claimed that Eduardo Bolsonaro had &#8220;contracted a mental virus&#8221; while in Miami.</p> <p><strong>Picture du jour.</strong> Mr. Bolsonaro&#8217;s constant attempts to ape Donald Trump—coupled with his fumbling with a face mask—led to this juxtaposition:</p> <figure class="wp-block-image"><img src="" alt="March 9 cover of The New Yorker (left), and Jair Bolsonaro on March 18." class="wp-image-33407" srcset=" 1024w, 300w, 768w, 610w, 1280w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>March 9 cover of The New Yorker (left), and Jair Bolsonaro on March 18.</figcaption></figure> <hr class="wp-block-separator"/> <h2>Border controls—for some</h2> <p>President Jair Bolsonaro announced this week the partial shutdown of Brazil&#8217;s northern border with Venezuela. Only the circulation of people will be affected, while the entry and exit of goods will remain cleared. The move seems more like another of Mr. Bolsonaro&#8217;s rhetoric stunts than an actual sanitary measure, as airports in Brasília and São Paulo have yet to bring in any sort of screening measures for the 165,000 who arrive daily from Europe and the U.S. And the National Surveillance Agency says it doesn&#8217;t plan to begin doing so.</p> <p><strong>Why it matters.</strong> The conduct goes against international protocols. In places like the U.S., China, South Korea, or Argentina, passengers&#8217; temperatures have been measured upon arrival, in order to prevent more imported cases of Covid-19.</p> <p><strong>Test, test, test. </strong>Mass testing was South Korea&#8217;s way to flatten the progression curve of the virus. But the Brazilian government still only runs tests on more severe cases—against <a href="">World Health Organization recommendations</a>. This could lead Brazil to become the new Italy in the coronavirus pandemic.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/1592842"><script src=""></script></div> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Lockdown.</strong> In São Paulo, shopping malls and gyms will remain closed until the end of April. Mayor Bruno Covas has forbidden shops to open—only supermarkets, bakeries, pharmacies, restaurants, gas stations, and fruit and vegetable markets will operate. In Rio de Janeiro, Governor Wilson Witzel is weighing up lifting utility bills for 60 days and shutting down mass transportation.</li><li><strong>Aviation.</strong> A majority stakeholder in one of Brazil&#8217;s largest airlines says the sector will take at least two to three years to recover from the Covid-19 crisis—even with the <a href="">government&#8217;s help</a>. The executive told <strong>The Brazilian Report</strong> that mergers and acquisitions will be the only way to make air travel profitable in the short-term future. The problem? The market is already highly concentrated as it is.</li><li><strong>Prisons.</strong> Rio de Janeiro&#8217;s most overcrowded prison has four suspected Covid-19 cases. After testing, the inmates were put back in their cells—as the facility has no space to quarantine them. Brazil&#8217;s penitentiary system is a cesspool of human rights violations and most facilities fail to offer basic sanitary conditions. If the outbreak really does reach our prisons, <a href="">it could be a doomsday-like scenario</a>. Meanwhile, states are restricting prisoners&#8217; visitation rights—which may fuel tensions even further.</li><li><strong>Basic products.</strong> The Federal Institute of Rio de Janeiro, a publicly-funded university, has started to produce alcohol-based hand sanitizer and awaits the green light from the National Sanitary Surveillance Agency to distribute the product for free. The move could help poorer populations access the basic materials used to prevent coronavirus transmission. As we reported on our <a href="">Covid-19 live blog</a>, many companies have used the crisis to jack up their prices—according to the private hospitals association, masks worn by healthcare professionals are now 581 percent more expensive.</li><li><strong>We need blood.</strong> As people put themselves into self-isolation, blood banks have begun experiencing shortages. Medical authorities in São Paulo report a 30-percent fall in the number of donors over the past ten days. Blood stocks were already low, and now could be completely erased.&nbsp;</li><li><strong>Food supplies. </strong>Agriculture Minister Tereza Cristina said on Wednesday that Brazil’s agribusiness sector has not been hit by the coronavirus outbreak—and that food supply will continue. “Brazil is a major producer, and no negative outlook is warranted regarding food shortages,” said Ms. Cristina. According to the National Supply Company (Conab), Brazil’s 2020–2021 grain harvest is estimated at 252 million tons, a 4.1-percent bump from the 2019–2020 period. Monitoring carried out by the Agriculture Ministry has not found any indication of possible food shortages in Brazil.</li><li><strong>Last Tango in Buenos Aires?</strong> The Argentinian government has suspended tango classes and performances—as well as <em>milongas</em>, traditional tango gatherings, for at least 15 days. According to the <a href="">Center for Systems Science and Engineering</a> (CSSE) at Johns Hopkins University, Argentina has recorded 97 Covid-19 cases and two deaths. All countries in Latin America have been affected.

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