When will things return to ‘normal’ in Brazil?

. Aug 21, 2020
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Today, we look at when Brazilian companies are hoping to return to their normal, pre-pandemic levels of activity. The difference in coronavirus concerns between rich and poor populations. The Economy Ministry’s plan to boost investment while avoiding ballooning public debt.

When Brazilian companies believe the “new normal” will begin

The “new normal” is 2020’s top cliché.

It has been used in many ways to describe how the coronavirus pandemic will change societies and how the economy functions. We know that companies will have to overhaul their sanitary protocols and how office spaces operate, if they even return to traditional office work at all. But with many economies sliding into what is shaping up to become the worst crisis of the past century, there is uncertainty around when this &#8220;new normal&#8221; will begin.</p> <ul><li>A <a href="https://blogdoibre.fgv.br/posts/impacto-da-pandemia-sobre-vida-dos-consumidores-e-expectativa-dos-empresarios-de-retorno">survey</a> by the Brazilian Institute of Economics at think tank Fundação Getúlio Vargas (IBRE-FGV) shows that only 25 percent of Brazilian companies say they are operating at &#8220;normal levels.&#8221; And 10 percent still have no idea of when they will be able to do so.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3531035"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Why it matters.</strong> The services sector, which is the backbone of the Brazilian economy, is the most pessimistic about the recovery. Only 17 percent of these companies are operating normally and no less than 47 percent expect normalcy <em>from 2021 on</em>, with 15 percent not being able to visualize any sort of return to pre-pandemic levels.</p> <p><strong>More pessimistic sectors.</strong> One takeaway from the survey is that 20 percent of companies working with transportation and logistics services have no idea when they will return to normalcy. Economist Renata Franco writes, however, that the result could be much worse, as the sector also includes passenger transportation segments, one of the worst-hit by the pandemic. That pessimism was offset by delivery companies, which benefited from the e-commerce boom created by social isolation.</p> <ul><li>A different survey, by market research company Talk Inc, helps explain the uncertainty of passenger transportation firms — as 53 percent of Brazilians don&#8217;t want to fly until next year. And 22 percent say they will only hop on another plane once a <a href="https://brazilian.report/podcast/2020/08/05/brazil-place-in-the-race-for-a-covid-19-vaccine-podcast/">Covid-19 vaccine</a> is available.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3530906"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Where optimism about the &#8220;new normal&#8221; lies.</strong> One positive highlight comes from the non-durable goods sector, which encompasses food, cleaning, medicine, and clothing. Meanwhile, producers of durable goods have recorded the lowest rate of uncertainty, with only 1.3 percent saying they can&#8217;t visualize a return to normalcy.</p> <p><strong>Bottom line.</strong> Segments considered to be &#8220;essential&#8221; managed to reestablish themselves more rapidly once social isolation measures began being lifted. Meanwhile, non-essential sectors continue to suffer — and services companies will continue to be harmed while uncertainty about sanitary conditions remains.</p> <hr class="wp-block-separator"/> <h2>What worries Brazilians</h2> <p>At this point, it has become quite clear that the coronavirus is not the &#8220;great equalizer,&#8221; as some tipped it to be at the beginning of the pandemic. While the virus is the same in the way it affects infected people, socioeconomic factors are a huge determinant of how populations are able to confront the crisis. Besides surveying companies, IBRE-FGV also looked at consumers to measure the impacts of the pandemic on them.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3531223"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Main takes.</strong> The higher the income, the more people are concerned about their wellbeing (health risks and social isolation issues). Poor populations, on the other hand, have much greater concerns for their finances.</p> <ul><li>Poor families felt a much steeper deterioration of their family finances during the pandemic. Not only because they work in less-qualified, more informal and &#8220;disposable&#8221; jobs, but also because inflation has been higher among basic necessities. A July study by the Institute for Applied Economic Research (Ipea) showed that, for the wealthy, inflation between January and July has been at -0.24 percent. For the poor, +0.77 percent.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3303972"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Paradox.</strong> The survey brings a curious piece of data: low-income Brazilians were those who felt the pandemic harder — and also those who felt its effects the least. It is counterintuitive, but economist Renata Franco writes that &#8220;while these people lost most of their income, the government&#8217;s coronavirus emergency salary offset much of these losses.&#8221;</p> <ul><li>Reporter José Roberto Castro showed on <strong>The Brazilian Report</strong> that there are 14 million people currently with <a href="https://brazilian.report/power/2020/08/20/what-happens-when-brazils-coronavirus-emergency-aid-ends/">no source of income</a>. Zero. They rely <em>entirely</em> on the emergency salary paid for by the government.</li></ul> <div class="flourish-embed flourish-scatter" data-src="visualisation/3524562"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <hr class="wp-block-separator"/> <h2>Guedes&#8217; plan to foster foreign investment</h2> <p>The Economy Ministry kicked off a public consultation to hear from companies about their top priorities in terms of deregulation. The so-called &#8220;Agenda for improving the regulatory framework of the investment environment&#8221; is one of Minister Paulo Guedes&#8217; main gambles to foster investments — and appease the military wing of the government — while avoiding an explosion of public debt.</p> <p><strong>Why it matters.</strong> Control over the federal budget has pitted the Economy Ministry — filled with deficit hawks — and the administration&#8217;s military wing, which favors a more hands-on approach to the economy.</p> <p><strong>Context.</strong> Earlier this month, the Economy Ministry also launched the National Plan of Investments. Divided into three pillars, it proposes actions until 2022 — and relies heavily on improving current regulations.</p> <ul><li>Moreover, Mr. Guedes&#8217; team is reportedly working on an internal effort dubbed &#8220;The Great Deregulation,&#8221; which plans to revise and revoke what it sees as &#8220;outdated norms.&#8221;</li></ul> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Congress. </strong>After the government was &#8220;blindsided&#8221; by the Senate&#8217;s decision to <a href="https://brazilian.report/newsletters/brazil-daily/2020/08/20/brazil-senate-unfreezes-civil-servants-pay-guedes-calls-it-a-crime/">unfreeze civil servant wages despite the current fiscal crisis</a>, lawmakers in the lower house came to the administration&#8217;s rescue. With help from Speaker Rodrigo Maia, the government managed to build a sizable majority and upheld a presidential veto on pay raises to public servants in 2020 and 2021. </li><li><strong>Education.</strong> The São Paulo City Hall believes that a return to in-person classes is &#8220;unlikely&#8221; to happen this year. Municipal serological studies to monitor the spread of the coronavirus in Brazil&#8217;s largest city pointed out a high rate of children who caught the virus but showed no symptoms — becoming potential superspreaders. Mayor Bruno Covas has already ruled out a <a href="https://brazilian.report/society/2020/04/23/covid-19-widens-the-education-gap-between-rich-and-poor-students/">return to classrooms</a> in September, but will only make a decision for the remainder of the year after the next three serological surveys.</li><li><strong>Justice. </strong>In a 9-1 vote, the Supreme Court ruled that the government must immediately suspend any efforts to produce dossiers with personal information of citizens who declare themselves &#8220;anti-fascist.&#8221; The decision states something that should be obvious: the government cannot monitor citizens who are not under formal investigation. Almost 600 civil servants and law enforcement agents had their <a href="https://brazilian.report/power/2020/08/01/is-bolsonaro-launching-his-own-private-intelligence-agency/">private information compiled by the Justice Ministry</a>, and the secret document was shared with police departments across the country, as well as to the office of the president’s Chief of Staff.</li><li><strong>Race.</strong> Brazil&#8217;s Superior Electoral Court is analyzing a request to force political parties to implement racial quotas for black and mixed-raced candidates, which would also be applied when distributing campaign funds from the parties&#8217; electoral funds. Black candidates receive less funding and time on parties&#8217; TV ads, and remain largely underrepresented in politics, occupying only 5 percent of elected seats. However, it is debatable whether this kind of quota is effective. Electoral rules say parties must give a minimum of 30 percent of campaign funds to female candidates — but many bypass the law by using dummy candidacies.

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