What to expect from Brazil’s Q2 2020 GDP numbers?

. Aug 26, 2020
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Today, we look ahead to Brazil’s GDP announcement for Q2. Half a year since the first Covid-19 case in Latin America. And the region looks to take advantage of global shifts in supply chains.

Upcoming Brazil GDP results to wipe out 11 years of growth

Brazil is set to publish its official Q2 GDP figures on September 1.

We already know that the drop will be significant, as economic activity was halted for much of the quarter. Reporter José Roberto Castro shows that, according to most financial institutions&#8217; projections, the quarterly drop will be somewhere between 8 and 10 percent.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3574920"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Why it matters.</strong> If projections are confirmed, it means that the Brazilian economy will regress to levels recorded in Q3 2009 — meaning that the pandemic has scrapped 11 years of (feeble) growth.</p> <p><strong>Winners and losers.</strong> Thanks to food exports, Brazil&#8217;s agribusiness is set to have a year of growth (projected at 3.2 percent for 2020). But the rest of the economy is perishing. The services sector has been hit hard by the suspension of the in-person economy, with industry — which are reliant on family consumption — finding itself 10 percent below Q4 2018 levels.&nbsp;</p> <div class="flourish-embed flourish-chart" data-src="visualisation/3575063"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Silver lining. </strong>Forecasts for the year are a bit better and suggest Brazil&#8217;s economy won&#8217;t fall as hard as some neighbors in Latin America. Markets have grown more optimistic about Brazil, and for eight straight weeks yearly GDP growth expectations have been raised, now at -5.46 percent, after a low point of -6.54 percent.</p> <ul><li>&#8220;Tuesday&#8217;s announcement will be dreadful — but it is a look in the rearview mirror. The low point of the crisis came in April,&#8221; says economist Claudio Considera, from think tank Fundação Getulio Vargas.&nbsp;</li></ul> <p><strong>GDP: glass half empty.</strong> This is Brazil&#8217;s worst recession in the past 40 years, with a cumulative loss of 11 percent of the country&#8217;s GDP. Moreover, Brazil faces a scenario of (very) slow recovery, even if it manages to get out of a technical recession as early as Q3 2020.&nbsp;</p> <p><strong>Pay attention to.</strong> Among all the data in the GDP announcement, we must monitor the investment rate — that is, how much money was spent to increase production. Mr. Considera expects a 21-percent drop in that indicator. &#8220;Brazil was already not investing a lot, and it will get worse. That drop is bad news because it means there is no kick to the economy,&#8221; he says.</p> <hr class="wp-block-separator"/> <h2>Six months of the coronavirus</h2> <p>Six months to this day, São Paulo confirmed its first case of Covid-19 — the infection of a 61-year-old who had returned from the Italian region of Lombardy. That was the first case in Latin America, a region that quickly spiraled to become the world&#8217;s coronavirus epicenter. Nearly every country has endured a terrible amount of human losses — not to mention the economic debacle caused by quarantines.</p> <div class="flourish-embed flourish-map" data-src="visualisation/3574474"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>What went wrong?</strong> The coronavirus outbreak in Latin America is a tale of failed leadership. In many countries, denialist presidents were too slow to act — some, like Brazil&#8217;s Jair Bolsonaro and Venezuela&#8217;s Nicolás Maduro, even became disinformation agents, touting unproven treatments to people. In many nations, rivaling political groups weren&#8217;t able to bury the hatchet momentarily in order to fight the worst health crisis of the past century.</p> <ul><li>But it would be unfair to blame it all on politicians. Even in countries where the pandemic was taken seriously, such as Argentina, Costa Rica, or Peru, cases and deaths are dramatically climbing.&nbsp;</li></ul> <p><strong>Why it matters.</strong> The coronavirus proved to be deadlier in areas defined by structural inequality. Uruguay, the region&#8217;s biggest success story, is home to a small, reasonably homogeneous population —&nbsp;and has one of the highest human development indexes in Latin America.</p> <p><strong>Brazil.</strong> In Latin America&#8217;s biggest economy, the pandemic deprived tens of millions of their income —&nbsp;and 14 million people rely exclusively on the government&#8217;s coronavirus emergency salary. In 25 of 27 states, people receiving the aid outnumber those who are formally employed.</p> <iframe src="https://open.spotify.com/embed-podcast/episode/6ZZeH86TSqcGeZOmJuf8ah" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <h2>Is Latin America ready for worldwide shifts in supply chains?</h2> <p>The pandemic exposed the problems with overly-concentrated supply chains that are reliant on specific markets. China, as the best example, is responsible for no less than 28 percent of global industrial output —&nbsp;and many countries are pushing for a redistribution of global value chains, seeking to bring production closer to home. That trend could represent a <a href="https://brazilian.report/business/2020/07/14/pandemic-could-create-golden-opportunity-brazil-industry/">golden opportunity for Latin America</a> — a region somewhat excluded from the supply chain boom of recent decades.</p> <ul><li>A recent study by The Economist Intelligence Unit ranks Mexico, Costa Rica, Chile, Brazil, and Colombia as being best placed to compete with Asia.</li></ul> <p><strong>Why it matters.</strong> With a focus on improving the business environment (with clearer rules and less-complicated taxes), alongside infrastructure investments, Latin America could become a key location of supply chains in the near future.</p> <p><strong>Yes, but … </strong>Not all Latin America will profit from this opportunity. &#8220;Chile, for example, could struggle in this area despite its many advantages, and political concerns over predictability, stability, and security,&#8221; writes the <a href="https://www.eiu.com/n/">EIU</a>.&nbsp;</p> <div class="flourish-embed flourish-scatter" data-src="visualisation/3575302"><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>Banks. </strong>While the pandemic has accelerated the digitization process of the Brazilian economy, it has also exploded the number of fraudulent schemes being perpetrated. Financial institutions calculate their losses with these crimes at around BRL 1 billion (USD 182 million) —&nbsp;which is half of what banks spend on information security.</li><li><strong>Snub. </strong>Economy Minister Paulo Guedes chose not to attend an event at the presidential palace for the launch of a new federal housing project — in a display of <a href="https://brazilian.report/power/2020/08/10/budget-who-controls-the-purse-strings-in-the-brazilian-government/">discontent with the government&#8217;s military wing</a>, which plans to increase public spending in a push to foster growth. Mr. Guedes, a deficit hawk, preaches fiscal responsibility and structural reforms as the best way out of the crisis. Disagreements around fiscal policy forced the government to <a href="https://brazilian.report/newsletters/brazil-daily/2020/08/25/brazilian-government-plans-big-bang-ends-up-with-damp-squib/">indefinitely postpone what was promised as a major growth plan</a>.</li><li><strong>Health.</strong> On Tuesday, Brasília&#8217;s Health Secretary and five top officials of the federal capital&#8217;s health department were arrested for suspected links to corruption schemes. They are accused of operating a kickback system in the purchase of overpriced low-quality Covid-19 testing kits (which have a high rate of false-negative results).</li><li><strong>Data privacy.</strong> The lower house passed a piece of legislation establishing that Brazil&#8217;s <a href="https://brazilian.report/podcast/2019/07/24/data-protection-changes-coming-your-way/">General Data Protection Law</a> will be enforced on December 31. The law was passed two years ago and the strict data privacy rules were supposed to be enforced earlier this month, but Congress <a href="https://brazilian.report/newsletters/brazil-daily/2020/08/07/pandemic-fuels-confusion-around-brazil-data-protection-law/">postponed</a> the date due to the pandemic, giving companies more time to <a href="https://brazilian.report/business/2019/06/07/prepare-lgpd-brazil-new-data-protection-law/">prepare</a>. But while the new rules start on January 1, 2021, fines will only be applicable in August of next year.</li><li><strong>Bailouts.</strong> President Jair Bolsonaro submitted a bill to Congress asking for BRL 577 million (USD 105 million) in credit for state-owned companies of the aviation and naval sectors.&nbsp;</li><li><strong>Education. </strong>The Brazilian Senate passed a constitutional amendment to make basic education fund Fundeb a permanent fixture of Brazil&#8217;s educational policy. Congress decided to enhance the federal government&#8217;s participation in the fund, from the current 10 percent to 23 percent by 2026. Fundeb is one of the most important ways to try and diminish the underfunding of regional educational systems in poorer states and municipalities.</li><li><strong>Justice.</strong> The Supreme Court nullified a criminal case conducted by former federal judge — and then Justice Minister — Sérgio Moro. The panel ruled that Mr. Moro broke the rules of impartiality by helping prosecutors and even including evidence the prosecution had failed to. The decision is important as the court is also set to trial a similar case involving former President Luiz Inácio Lula da Silva — who has become ineligible due to multiple corruption convictions. And a 2019 scandal showed that Mr. Moro <a href="https://brazilian.report/podcast/2019/06/12/intercept-car-wash-leaks-moro/">acted as an accessory to the prosecution</a> at several moments of the anti-corruption Operation Car Wash.

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