Brazil’s recession to be brief yet acute

. Jun 30, 2020
Brazil's recession to be brief yet acute Photo: Checkin/Shutterstock

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Today, we bring you projections for the looming Brazilian recession. China’s move to ban Brazilian meat due to coronavirus scares. And how Brasília’s failed reopening epitomizes the country’s botched response.

Brasília, we have a recession

Brazil entered a recession in the first quarter of 2020, after three years of sluggish but consistent growth.

According to the Economic Cycles Dating Committee, linked to think tank Fundação Getulio Vargas, this recession might not last for that long, when compared to <a href="https://brazilian.report/society/2019/05/03/brazilian-economy-crises-history/">previous ones</a> over the past 40 years. However, it is set to be the <a href="https://portalibre.fgv.br/sites/default/files/2020-06/brazilian-economic-cycle-dating-committee-announcement-on-06_29_2020.pdf">most intense downturn</a>.</p> <ul><li>A recession is typically recognized as two consecutive quarters of economic decline. While Q2 numbers have yet to come out, it is certain that they will be well under zero. GDP contracted -1.5 percent in Q1 and is expected to fall by as much as 10 percent in Q2, the height of quarantine measures.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3025183" data-url="https://flo.uri.sh/visualisation/3025183/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Why it matters.</strong> The economy was already in poor shape. This means that the economic recovery will not be V- or W-shaped. Instead, it will take the shape of a K — wealthy groups getting back on their feet while poorer workers lose purchasing power, widening the distance between them.</p> <p><strong>Why K?</strong> Social isolation has been brutal to the services economy —&nbsp;which is filled with poorly-qualified workers who earn the lowest salaries. But also because the inflow of credit the Central Bank is trying to pour on the economy is going to better-established companies, which offer the lowest risk for banks —&nbsp;but are not necessarily those which need a bailout the most.</p> <ul><li>But over two-thirds of Brazil&#8217;s jobs are in the services sector — and most of them are informal, which make them even more vulnerable to the crisis.</li><li>Registered workers had <em>some</em> protection. The government allowed companies to suspend contracts and paychecks, compensating part of the lost income. The Economy Ministry said the move, which is set to be extended, avoided 11.7 million layoffs.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3025555" data-url="https://flo.uri.sh/visualisation/3025555/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Aid.</strong> The government&#8217;s three-month BRL 600 (USD 110) emergency salary to vulnerable populations has proven to be essential to <a href="https://brazilian.report/society/2020/06/25/emergency-covid-19-aid-has-been-essential-for-low-income-workers/">keep millions of people from falling below the poverty line</a>. President Jair Bolsonaro has said the government will pay an extra BRL 1,200 — either in two or three installments.</p> <p><strong>Glass half full.</strong> The Central Bank believes that Brazil reached rock bottom in April. In the best-case scenario, rock bottom will last for some months —&nbsp;the longer recovery takes, the hardest the recession will be felt by the poor and the middle class.</p> <p><strong>Glass half empty.</strong> In the worst-case scenario, the pandemic will continue to spiral out of control and the country&#8217;s economy will fall even deeper.</p> <hr class="wp-block-separator"/> <h2>China bans meat from three Brazilian factories amid pandemic</h2> <p>The Agriculture Ministry reports that China suspended imports from three Brazilian meat-processing plants on Monday, citing concerns over Covid-19 contamination. The government, however, did not specify which companies were affected by Beijing&#8217;s decision. Meanwhile, the country&#8217;s top producers —&nbsp;JBS, Marfrif, and Minuano — declined to comment.</p> <ul><li>Chinese customs authorities have asked for information about Brazilian slaughterhouses that have registered outbreaks of coronavirus infections. By June 16, at least 47 abattoirs in 17 states had been shut down by the Agriculture Ministry due to Covid-19 contamination.&nbsp;</li></ul> <p><strong>Why it matters.</strong> Meat-processing plants are made up of closed, refrigerated spaces — ventilation systems are built to avoid external contamination — where hundreds, sometimes thousands, of people work “shoulder to shoulder,” handling animal protein. These companies have become <a href="https://brazilian.report/business/2020/05/30/role-meat-plants-coronavirus-spread-brazil-countryside/">breeding grounds for the coronavirus</a>.</p> <ul><li>The looming crisis could have massive repercussions across the globe — as Brazil is the <a href="https://brazilian.report/business/2018/11/05/embassy-jerusalem-halal-meat-exports/">world’s largest meat exporter</a>.</li></ul> <p><strong>Lax regulations.</strong> Only on May 11 did the Agriculture Ministry issue a set of recommendations to how meat companies should proceed to avoid contaminations within their facilities. The document, however, is not legally binding.</p> <hr class="wp-block-separator"/> <h2>Rushing back to work in Brazil&#8217;s capital</h2> <p>Governor Ibaneis Rocha has declared a state of public calamity in Brazil&#8217;s federal capital Brasília, with over 47,000 Covid-19 cases and 559 deaths. Despite the move, Mr. Rocha still went on with greenlighting a series of businesses to reopen, as part of his administration&#8217;s push to return to economic normality.</p> <p><strong>Quarantine.</strong> At the beginning of the pandemic, Brasília imposed some of the most restrictive quarantine rules. But it was also one of the first regions in Brazil to reopen, and did so before infection and death curves were going down — something other governors have copied.</p> <p><strong>Results.</strong> Cases and deaths spiked after a reopening that came long before experts thought it was safe. With the economic crisis hitting states hard, governors are making decisions less based on scientific evidence — and more in line with their own political interests.</p> <p><strong>Behavior.</strong> A new poll by Datafolha shows that Brazilians are increasingly afraid of contracting the coronavirus (78 percent are very or somewhat afraid). However, the rate of people who say they are in total isolation has actually decreased (12 percent). Interestingly, the survey suggests that poorer people —&nbsp;who live in communities where social distancing is more difficult —&nbsp;isolate themselves more than the rich.</p> <p><strong>Why it matters.</strong> The public buy-in for total isolation has gone down, which raises the question: how would it be possible to shut economies down <em>again</em> as the <a href="https://brazilian.report/coronavirus-brazil-live-blog/">coronavirus continues to spread</a>?</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3012250" data-url="https://flo.uri.sh/visualisation/3012250/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <div class="flourish-embed flourish-chart" data-src="visualisation/3026466" data-url="https://flo.uri.sh/visualisation/3026466/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Cabinet.</strong> Brazil&#8217;s new Education Minister might be fired before he is sworn in. After Carlos Alberto Decotelli was caught lying on his résumé, including a Ph.D. he never obtained and postdoctoral research he never carried out, President Bolsonaro postponed the inauguration ceremony scheduled for Monday. He is not, however, the only minister in the hot seat. Aides have advised Mr. Bolsonaro to get rid of Ricardo Salles (Environment) and Ernesto Araújo (Foreign Affairs), who have become liabilities for Brazil&#8217;s international image —&nbsp;which could dry out foreign investment.</li><li><strong>The three stages of a pandemic.</strong> A survey by consulting firm GfK showed that, among wealthier Brazilians, the consumption of &#8220;superfluous&#8221; goods — such as tablets or robotic vacuums —&nbsp;has skyrocketed. The study says these consumption decisions are part of the stages of grief people are experiencing during the pandemic: from panic, to adaptation, to, finally, self-indulgence. &#8220;The sentiment now is: &#8216;the pandemic will last for a long time, therefore I deserve to give myself some presents,'&#8221; says GfK director Fernando Baialuna.</li><li><strong>Chloroquine. </strong>In order to validate the government&#8217;s endorsement of antimalarial drug <a href="https://brazilian.report/podcast/2020/05/27/chloroquine-bolsonaros-miracle-cure-for-covid-19-podcast/">chloroquine as a treatment for Covid-19</a>, Brazil&#8217;s interim Deputy Health Minister Élcio Franco said one of the country&#8217;s flagship health institutions, the São Paulo-based Albert Einstein Hospital, had adopted the medication. The hospital quickly announced otherwise.

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