Brazil’s recovery flounders as food prices soar

. Sep 10, 2020
recovery brazil Photo: Lightspring/Shutterstock

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Today, we cover the outlook of Brazil’s economic recovery. How soaring food prices are worrying the government. And the state of Covid-19 in the country.

Brazil’s feeble recovery becomes even more uncertain

This week Geneva-based consultancy Horizon released its

Covid-19 Economic Recovery Index Ranking, analyzing how 122 countries are positioned for recovery. Brazil was ranked in a rather underwhelming 51st position.</p> <div class="flourish-embed flourish-map" data-src="visualisation/3701551" data-url="" aria-label=""><script src=""></script></div> <p><strong>BRICS.</strong> During last year&#8217;s BRICS Summit in Brasília, we argued that the <a href="">BRICS alliance had become more like &#8216;China &amp; Co.&#8217;</a> Horizon&#8217;s study corroborates this view: China was ranked as the best-performing emerging economy (32nd overall), ahead of Russia (36th), Brazil, India (63rd), and South Africa (77th, the worst among G20 nations).</p> <p><strong>Latin America&#8217;s recovery potential.</strong> Many of the region&#8217;s middle-income countries, such as Brazil, Mexico, Colombia, Ecuador, and the Dominican Republic have been rated as having a reduced capacity to absorb short-term shocks and lacking the capacity for quick recovery.</p> <p><strong>Brazil.</strong> The country&#8217;s &#8220;high dependence on vulnerable industries, immense income inequality, and less-than-optimal job market performance&#8221; are ranked as the main factors holding Brazil back.</p> <p><strong>Why it matters.</strong> The obstacles for a faster recovery listed by Horizon tend to increase in the short term. While the coronavirus emergency salary has been extended, monthly payments were halved to only BRL 300 (USD 56), which reduces families&#8217; purchasing power. </p> <ul><li>For Brazil&#8217;s poorest 10 percent, income is expected to decline 44 percent. When the grant ends — which is expected to happen after December — the drop will get to 77 percent.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3702382" data-url="" aria-label=""><script src=""></script></div> <p><strong>Cash transfers.</strong> The emergency salary has a price tag of BRL 50 billion per month, which is beyond the government&#8217;s means. But the much-heralded Renda Brasil program, a beefed-up version of the worldly-renowned Bolsa Família, has yet to materialize. &#8220;If no compensatory measure is created by January 2021, Brazil&#8217;s lower-income population will experience a brutal reduction in income,&#8221; says Daniel Duque, an economist at think tank Fundação Getulio Vargas.</p> <p><strong>Effects.</strong> <a href="">Episode #114 of our Explaining Brazil podcast</a> discussed the social effects of a major economic crisis —&nbsp;including steep increases in crime rates.</p> <hr class="wp-block-separator"/> <h2>Government tries to tame soaring food prices</h2> <p>During the 2018 campaign, Jair Bolsonaro and his economic guru, Paulo Guedes, talked about the need for less government intervention in the Brazilian economy. But as food prices dramatically increase, the administration is exchanging the proverbial invisible hand of the market for a hands-on approach.&nbsp;</p> <ul><li>The Justice Ministry requested major food producers and vendors to provide explanations within five days for the recent price bumps in products such as rice, milk, and soy oil — which have already increased by 20 percent this year. For comparison’s sake, overall inflation since January sits at 0.7 percent.</li></ul> <p><strong>Why it matters.</strong> <a href="">Food prices</a> weigh disproportionately on the poor and could spark mass anger among a significant proportion of the electorate.</p> <p><strong>Bolsonaro.</strong> Despite ordering private businesses to explain their pricing policies, President Jair Bolsonaro said he won&#8217;t intervene and freeze prices. &#8220;But I&#8217;m asking [vendors] to narrow their margins on essential products to close to zero,&#8221; he added, appealing to business owners&#8217; &#8220;sense of patriotism.&#8221;</p> <p><strong>Why prices are going up.</strong> Multiple factors are at play here, such as a devalued Brazilian currency, enormous demand from China, and the agricultural off-season.</p> <ul><li>The government decided to remove import tariffs on several food products until the end of the year. However, the move will only have a limited effect on prices (if any) due to the fact that international prices are in U.S. Dollars — and the Brazilian Real has lost 32 percent of its value against the U.S. Dollar this year.&nbsp;</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/3696076" data-url="" aria-label=""><script src=""></script></div> <hr class="wp-block-separator"/> <h2>Declining coronavirus curve should be approached with caution</h2> <p>The curves for both coronavirus infections and deaths have been trending downwards in recent days. Still, experts are calling for caution for caution. Firstly, because Brazil has just gone through a three-day weekend, after the September 7 Independence Day celebrations. And data collection has been severely hampered during weekends and holidays.</p> <ul><li>Moreover, in a country as big as Brazil, the spread evolves very differently by region. While many states in the South and Southeast have recorded fewer cases and casualties, others in the North have observed a recent uptick in curves.</li><li>Experts are still debating whether the pandemic in Brazil has already reached its peak. Rodrigo Corder, an infectious disease modeling researcher, told <strong>The Brazilian Report</strong> that certain parts of the country may be close to reaching herd immunity. But it remains too early to tell.</li></ul> <div class="flourish-embed flourish-chart" data-src="visualisation/2641109" data-url="" aria-label=""><script src=""></script></div> <div class="flourish-embed flourish-chart" data-src="visualisation/2641192" data-url="" aria-label=""><script src=""></script></div> <p><strong>Vaccines.</strong> São Paulo Governor João Doria said on Wednesday that phase-3 clinical trials of a potential Covid-19 vaccine developed by Chinese pharmaceutical company Sinovac Biotech have shown &#8220;promising results&#8221; and may be available to Brazilians as early as December. Mr. Doria added that phase-2 trials showed an immunity response of 98 percent in the elderly.</p> <ul><li>A fifth potential vaccine will be tested in Brazil. Lab giant Dasa announced a partnership with Covaxx, a division of U.S. group United Biomedical. The research project is still in the phase-1 stage, being tested in Taiwan. Phases 2 and 3 will happen in Brazil, with at least 3,000 Brazilian volunteers participating in the scheduled trials. Patients will be recruited in November, after regulators greenlight the vaccine trials.&nbsp;</li></ul> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Supreme Court.</strong> Luiz Fux will be appointed as Brazil&#8217;s Supreme Court Chief Justice today. His two-year stint at the helm of the country’s highest court begins amid a political crisis — combined with a health emergency and an economic depression in sight. Many controversial cases are set to be heard by the court over the next few months, including one that could reverse criminal convictions against former President Luiz Inácio Lula da Silva — which would make him eligible to run for office in the 2022 elections. Our <a href="">September 8 Weekly Report explained who Mr. Fux is</a>.</li><li><strong>Rio. </strong>Supreme Court Justice Dias Toffoli has dismissed a request by Rio de Janeiro Governor Wilson Witzel to overturn his 180-day suspension from office. The Superior Court of Justice ruled that Mr. Witzel should be temporarily removed while facing a corruption investigation — he is suspected of running a crime ring that embezzled funds earmarked for the coronavirus fight. This week&#8217;s episode of the Explaining Brazil Podcast talks about <a href="">Rio&#8217;s descent into political chaos</a>.  </li><li><strong>Trade. </strong>President Jair Bolsonaro has reportedly decided to grant a 90-day renewal of Brazil’s tax-free quota for foreign ethanol, benefiting U.S. producers — just days after Donald Trump’s White House imposed <a href="">reduced import quotas on Brazilian semi-finished steel</a>. The move, which is still to be officially announced, marks yet another break for Mr. Bolsonaro from the principle of reciprocity Brazil&#8217;s trade policy has traditionally followed.</li><li><strong>Flop.</strong> During the Independence Day weekend, former President Luiz Inácio Lula da Silva addressed the nation on the Workers&#8217; Party&#8217;s official YouTube channel. The 23-minute <a href="">manifesto</a> — which talked about fighting poverty and healing Brazilian democracy — served to all but launch Lula as a presidential candidate again for the 2022 elections (even if, for the moment, he remains ineligible for office). However, as of writing, the video has only been watched 695,000 times. And dislikes (116,000) outnumber likes (103,000), suggesting that many of these views come from detractors who clicked on the video just to show their disgust for the former president.</li><li><strong>Currency.</strong> After two years without a single international contract, the <a href="">Brazilian Mint</a> has inked a USD 20.6-million deal with Argentina to produce 400 Argentine Peso banknotes. The new contract will help the Mint close 2020 in the black — after three years of losses. It will be the first time the company operates at capacity since 2018, when the Mint was exporting banknotes to Venezuela.

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