Before Covid-19’s ‘worst phase,’ Brazil wants to reopen the economy

. Apr 23, 2020
Before Covid-19's 'worst phase,' Brazil wants to reopen the economy Open market in Apucarana, Paraná. Photo: Jair Ferreira Belafacce/Shutterstock

This newsletter is for PREMIUM subscribers only. Become one now!

We’re covering the Health Ministry’s intentions to resume the in-person economy. The new normal for Brazil’s foreign exchange rate. And the impacts of the coronavirus on industry and commerce. 

Brazil to loosen quarantine based on flawed data

In his first press

conference as Brazil&#8217;s Health Minister, Nelson Teich said the country needs to think about how it will reopen the economy. &#8220;Social isolation is natural and logical at first, but it must be followed by an exit plan.&#8221; To justify his position, the minister said &#8220;Brazil is one of the best-performing countries against Covid-19,&#8221; saying the country has fewer deaths per million people than Germany, Italy, Spain, or the U.S.</p> <p><strong>Yes, but … </strong>The newly-appointed minister is analyzing the situation based on data that is massively underreporting cases and deaths, according to multiple experts. The true extent of the crisis remains unknown in Brazil.</p> <ul><li>A study by the Oswaldo Cruz Foundation shows that the number of hospitalizations for acute respiratory distress syndrome (ARDS) —&nbsp;which can be caused by Covid-19 —&nbsp;has been almost ten times higher this year than the average over the past decade.</li></ul> <p><strong>Fine line. </strong>The minister must tread a fine line between proposing a reopening that is quick enough not to upset his anti-quarantine boss, President Jair Bolsonaro, but not too rushed as to jeopardize the health of millions of Brazilians.</p> <ul><li>President Jair Bolsonaro&#8217;s political strategy of <a href="">inciting insurrection against isolation measures</a> appears to be working. It has lowered quarantine compliance rates and forced states to discuss reopening their economies — even in São Paulo and Rio de Janeiro, the two worst-affected areas.&nbsp;</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/2016396" data-url=""><script src=""></script></div> <p><strong>Why it matters. </strong>According to the World Health Organization, Latin America is about to face the worst stage of the pandemic — and the region could quickly become the new Covid-19 epicenter.</p> <ul><li>Amazonian states are already experiencing a collapse of their healthcare networks — and other states shall soon follow. In Pernambuco, 99 percent of intensive care beds are occupied and there is a shortage of ventilators for severe Covid-19 patients. In Rio de Janeiro, 80 percent of ICUs are filled, and nearly 2,000 health professionals were put on sick leave.</li></ul> <p><strong>Bottom line.</strong> By rushing to reopen their states, governors could make a bad situation even worse, potentially prolonging the need for social isolation in the country.</p> <div class="flourish-embed flourish-map" data-src="visualisation/1724124" data-url=""><script src=""></script></div> <hr class="wp-block-separator"/> <h2>Could the Brazilian Real plunge even further against the dollar?</h2> <p>Brazil&#8217;s currency continued its 2020 freefall on Wednesday, with investors expecting the Central Bank to make aggressive cuts to the country&#8217;s already-record-low benchmark interest rates. On Monday, Bank chief Roberto Campos Neto said they would &#8220;take measures to improve credit availability&#8221; during the Covid-19 pandemic.</p> <ul><li>Experts say the currency rout is the result of multiple factors: the Brazilian economy is heading to a scenario of deflation and recession; interest rates are low, and the market is suffering a flight of capital. Another major factor is the uncertainty around the real impacts of the pandemic in Brazil, as the country has underreported cases and deaths due to a lack of testing. This all adds up to make an effective repellent for investment, amid a global trend of risk aversion.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/2057055" data-url=""><script src=""></script></div> <p><strong>Why it matters.</strong> A weaker Brazilian Real makes imports of medical supplies even more expensive —&nbsp;and the country is already cash-strapped as it is. Meanwhile, it benefit exporters who trade their products in U.S. Dollars.</p> <p><strong>Outlook.</strong> Economists at XP Research believe that <a href="">the foreign exchange rate may reach BRL 6 : USD 1</a> before falling back to BRL 4.70 by year-end, <em>if</em> the global economic recovery brings an influx of new capital to Brazil.</p> <p><strong>Interest.</strong> “We have three meetings [of the Central Bank&#8217;s Monetary Policy Committee] until August. The market is pricing that the benchmark [interest] rate will fall from its current level of 3.75 percent to somewhere between 2.5 and 2.25 percent on August 6. This is what the (yields) curve shows. Unbelievable!,” <a href="">wrote</a> Henrique Bredda, partner at Alaska Asset Management, on Twitter.</p> <p><em>— with Natália Scalzaretto</em></p> <hr class="wp-block-separator"/> <h2>Industry and commerce layoffs could amount to 3 million</h2> <p>We still do not have any official data on the impact of the coronavirus on the job market. But associations representing individual sectors have tried to analyze how companies have reacted to the shock. Abimaq, which represents machinery and equipment producers, says 11,000 jobs have been suspended, corresponding to 3 percent of all workers in the sector. So far, most companies have opted to send their staff on collective vacations as their first move.</p> <p><strong>Yes, but … </strong>As 86 percent of companies report a downturn in business, the number of layoffs in the sector should spike to 200,000, taking into account both direct and indirect jobs.</p> <ul><li>Companies continue to report having trouble accessing credit lines, despite the government&#8217;s efforts to reduce default risks for banks. No less than 91 percent of micro and small enterprises say they couldn&#8217;t get a loan.</li><li>Meanwhile, the National Commerce Confederation predicts 1.8 million potential layoffs within three months. In bars and restaurants, layoffs could reach an additional 1 million workers.</li></ul> <p><strong>Why it matters.</strong> Brazil — like many countries —&nbsp;is heading toward an unprecedented job crisis, and the government&#8217;s strategies to mitigate the problem have been underwhelming so far.</p> <div id="buzzsprout-player-3212182"></div> <script src=";player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Economy 1.</strong> After promising to bring forward the second of three BRL 600 Covid-19 emergency salaries to informal workers and single mothers, the Citizenship Ministry backpedaled. The government cited budgetary issues and the fact that millions of people have not yet received their first installment of financial assistance. However, it has not informed when the payment will be wired.</li><li><strong>Economy 2.</strong> Congress has extended the aid package to teenage mothers and single fathers, as well.</li><li><strong>Opposition.</strong> As American essayist Charles Dudley Warner said, &#8220;politics makes strange bedfellows.&#8221; On May 1, trade unions will hold a video-conference rally with a rather curious list of guests. Sharing the virtual stage with former President Luiz Inácio Lula da Silva will be politicians from the other side of the aisle, such as former President Fernando Henrique Cardoso, House Speaker Rodrigo Maia, and the uber-conservative governors Wilson Witzel, from Rio, and João Doria, from São Paulo. As President Jair Bolsonaro tries to <a href="">scramble to form a coalition in Congress</a>, more moderate politicians try to send a message that <a href="">broad opposition can happen in Brazil</a>.</li><li><strong>Taxes.</strong> The Brazilian federal government raised BRL 109.7 billion (USD 20.35 billion) in taxes in March. This was the lowest level for the month since 2010, when the country was still feeling the effects of the 2008-2009 global financial crisis. According to federal tax authorities, the numbers are a direct result of the coronavirus crisis — and results could be even worse in April.</li><li><strong>Privatizations.</strong> The government had intended to raise BRL 150 billion by way of selling assets in 2020. The pandemic has shattered that goal, as Privatizations Secretary Salim Mattar admitted on Wednesday. He said the pandemic has killed any mood for deals. &#8220;We can&#8217;t sell state-owned companies for peanuts,&#8221; Mr. Mattar told <em>Reuters</em>.</li><li><strong>Loans.</strong> After intense pressure from business sectors, the House has dismissed a bill that would force companies with owners&#8217; equity of BRL 1 billion to lend 10 percent of their net profits over the past 12 months to the government. Payback would happen in up to four years. Business owners complained that the bill, if passed, would further reduce their capacity to preserve jobs and hamper the Brazilian economy even more.

Read the full story NOW!

Our content is protected by copyright. Want to republish The Brazilian Report? Email us at