Brazil’s recovery won’t be V-shaped

. May 14, 2020
High debt levels prevent V-shaped recovery for Brazil Image: 3DJustincase/Shutterstock

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Depression, not recession, might be on the horizon — and the recovery will not be swift. The soap-opera around Jair Bolsonaro’s Covid-19 comes to an end. And the increasing coronavirus curve.

High debt levels prevent V-shaped recovery for Brazil

The Covid-19 pandemic is set to push Brazil into its worst recession on record,

and the Economy Ministry believes that the high debt levels of both companies and the government will prevent any form of V-shaped recovery — foreseeing the effects of the crisis lasting at least until 2022. The government — which is usually the last to abandon optimism&nbsp;— has now joined consensus and predicts a negative GDP growth rate for the year: -4.7 percent.</p> <ul><li>The base scenario for this forecast involves isolation measures being enforced beyond May 31, when many quarantine decrees are set to expire. This is a reasonable prediction, as governors of São Paulo and Rio de Janeiro are not ruling out full-scale lockdowns unless social isolation rates increase soon.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/2392386" data-url=""><script src=""></script></div> <p><strong>Why it matters.</strong> According to a study by The Economist Intelligence Unit, the Brazilian economy will be affected the most by the Covid-19 crisis, out of 19 countries analyzed. Government officials fear this could spark social unrest and a spike in violence rates.</p> <p><strong>Not a V-shaped recovery.</strong> “The crisis will have an impact now, but the biggest hit is in the long-term. GDP will only reach pre-crisis levels in 2022 due to its high debt levels,” said Brazil&#8217;s Macroeconomic Policy Secretary Vladimir Kuhl Teles. Among 39 emerging markets analyzed by the International Monetary Fund, only Venezuela and Angola had a worse debt-to-GDP ratio than Brazil.</p> <p><strong>Debt v. recovery.</strong> Emergency actions to curb the crisis&#8217; economic effects have already pushed Brazil&#8217;s projected deficit for the year to BRL 600 billion (USD 102 billion). Finance Secretary Waldery Rodrigues ensured that the extra spending is temporary and “does not compromise fiscal balance guidelines and [the government&#8217;s ability to right the ship] after the crisis.”</p> <ul><li>Mr. Rodrigues didn&#8217;t miss an opportunity to sneak a jab at Congress, saying that all extra money should go to &#8220;raise [civil servants&#8217;] wages.&#8221; Last week, lawmakers passed a <a href="">plan to help states and municipalities</a>, including a long list of public careers which would be allowed to get salary bumps.</li><li>&#8220;Developed economies such as the U.S. or Japan have an enormous margin of maneuver to lend money for recovery programs, due to their long history as reliable borrowers. Emerging nations have restricted capacity for fiscal stimulus,&#8221; said Nobel Prize-winning economist Paul Krugman.</li></ul> <p><strong>Across the board.</strong> The more we know about Covid-19&#8217;s impacts, the grimmer it looks. In March, industries posted their <a href="">worst results since the 2018 truckers&#8217; strike</a> — while retailers recorded their <a href="">poorest performance in 17 years</a>. Think tank Fundação Getulio Vargas predicts an 18.7-percent unemployment rate —&nbsp;which could be higher if all those who are laid off actively seek new work.&nbsp;</p> <p><em>— with Natália Scalzaretto</em></p> <hr class="wp-block-separator"/> <h2>Bolsonaro&#8217;s tests were negative after all</h2> <p>President Jair Bolsonaro kept his Covid-19 tests a secret for one month, before being made public following a Supreme Court decision. All three of the tests in question came back negative, as the president had said. His unwillingness to disclose the results led many to suspect the president had in fact been contaminated with the coronavirus, especially considering 24 people in his inner circle were infected.</p> <ul><li>Over the past month, Mr. Bolsonaro met, greeted, and hugged supporters — usually not wearing a protective mask nor respecting social isolation. Should the results have come back positive, the president could have been investigated for crimes against public health.</li></ul> <p><strong>Why hide?</strong> Mr. Bolsonaro&#8217;s test results were the theme of this week&#8217;s episode of the <em><a href="">Explaining Brazil</a></em><a href=""> podcast</a>. &#8220;It may not be so much about trolling the media, but more about one of [the president&#8217;s] political hallmarks, which is contaminating the environment, creating a situation in which people don&#8217;t believe in anything,&#8221; said Filipe Campante, an associate professor at the Johns Hopkins University School of Advanced International Studies.&nbsp;</p> <p><strong>Why it matters.</strong> The health of a president is a state matter — and has an enormous influence on policy and the economy.&nbsp;</p> <div id="buzzsprout-player-3738239"></div> <script src=";player=small" type="text/javascript" charset="utf-8"></script> <hr class="wp-block-separator"/> <h2>Not a peak, but a plateau</h2> <p>With a new daily record for confirmed infections (11,385), Brazil became the sixth nation with most coronavirus cases yesterday: 188,974. The death toll reached 13,149. Data shows that the infection curve is nowhere near flattening, with experts saying Brazil might not experience a statistical peak, <em>per se</em>, but rather a plateau, where growth slows but numbers remain high for days or weeks.</p> <ul><li>Brazil&#8217;s rising curve doesn&#8217;t even account for massive underreporting, as the country has been unable to test the population effectively. In states such as Minas Gerais, the <a href="">backlog of untested suspected cases</a> reaches 100,000 people.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/2383844" data-url=""><script src=""></script></div> <p><strong>Why it matters.</strong> Without effective tracking of the virus or social isolation measures, Brazil is unable to contain the spread or reopen its economy.</p> <p><strong>No leadership.</strong> Almost a month after being named Brazil&#8217;s Health Minister, oncologist Nelson Teich has yet to make an impact. Many in Brasília say his Army General deputy is the one calling the shots. Moreover, the government is making health-related decisions — such as defining gyms and hair salons as &#8220;essential&#8221; businesses — without consulting him.</p> <ul><li>On Wednesday, Mr. Teich used social media to warn about the risks of using antimalarial drug chloroquine against Covid-19. Hours later, President Bolsonaro once again touted the medicine, overruling the minister.</li></ul> <p><strong>Remember?</strong> One month ago, Congressman Osmar Terra&nbsp;— a close ally of the president&#8217;s —&nbsp;said the epidemic would be over within &#8220;<a href="">two, three weeks</a>,&#8221; and that was &#8220;time to celebrate.&#8221; Almost 12,000 people have died since.</p> <iframe title="COVID-19 cases and deaths in Brazil" aria-label="Map" id="datawrapper-chart-vvN3h" src="" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="557"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(a){if(void 0!["datawrapper-height"])for(var e in["datawrapper-height"]){var t=document.getElementById("datawrapper-chart-"+e)||document.querySelector("iframe[src*='"+e+"']");t&&(["datawrapper-height"][e]+"px")}}))}(); </script> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>No money.</strong> Norway Government Pension Fund Global — the biggest sovereign fund in the world, worth USD 1 trillion — has blacklisted Brazilian mining company Vale and state-owned energy firm Eletrobras, for actions detrimental to the environment and human rights abuses. Vale was punished for the <a href="">Mariana</a> and <a href="">Brumadinho</a> dam failures, and Eletrobras for the construction of the <a href="">Belo Monte hydroelectric power plant</a>. Eletrobras told the local press it included human rights on its social responsibility policy guidelines in 2018, and has actions planned for 2021/2022 which include Belo Monte. Vale, on the other hand, had just announced it will invest USD 2 billion to slash CO<sub>2</sub> emissions by 33 percent as of 2030, aiming to become net neutral in emissions by 2050.&nbsp;</li><li><strong>Catch 22.</strong> Over 7.2 million workers were <a href=",854051/7-2-milhoes-de-trabalhadores-ja-tiveram-salario-reduzido-na-pandemia.shtml">included</a> in the government&#8217;s program to allow companies to cut wages and hours temporarily. Right now, businesses are faced with unappealing choices: if they join the program, they reduce their costs but cannot lay off staff. If they choose to fire their staff, they risk not being able to resume activity once the economy is reopened.</li><li><strong>Controls 1.</strong> Back in March, the National Sanitary Surveillance Agency had decided to fast-track the process to allow the entry of health products related to fighting Covid-19. Now, all products that file for authorization to be sold in Brazil may benefit from these rules —&nbsp;skipping a few steps in sanitary controls.&nbsp;</li><li><strong>Controls 2. </strong>Aiming at protecting its agents from Covid-19 contamination risks, the agency relaxed inspection rules on ships docked at Brazilian ports. During the public health emergency, auditors can issue sanitary permits based solely on documents and photos provided by crew members themselves, without a need for physical inspections.

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