Brazil’s big Q3 growth will not erase Covid crash

. Dec 03, 2020
economy brazil covid High unemployment figures pushed millions of Brazilians into working for delivery apps. Leonidas Santana

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Today, we talk about the direction of the Brazilian economy. The government’s privatization list. And Brazil’s move towards vaccine clearances.

Will Q3 growth be enough to offset losses?

The government announced Brazil’s GDP results for the third quarter of 2020, with the country posting 7.7-percent growth. While this is a record jump for a single quarter since 1996, it fell below investors’ expectations of 9 percent. Furthermore, it will not be enough to offset the coronavirus crash observed earlier in the year. Despite a recent rally, activity in many sectors remains below pre-pandemic levels.

  • Industry has seen six consecutive months of growth, but still accumulated losses of 6.3 percent for the year, showing signs that the recovery is losing steam.
  • Sectors such as services (the backbone of the Brazilian economy), education, and private healthcare are still taking a long time to recover — which compromises the performance of other interconnected sectors, too.

Why it matters. For economists at think tank Fundação Getulio Vargas, the Brazilian economy should only return to 2019 levels (which were already underwhelming) by late 2021 or in 2022.

It could have been worse. While there is no question that the economy is in poor shape, a full-scale catastrophe was avoided by the government’s massive spending on stimulus packages. According to the Independent Fiscal Institution — a think tank linked to the Senate — spending on issues related to the pandemic should amount to 7 percent of GDP, in line with developed economies.

Yes, but … It remains uncertain whether stimulus policies will continue in 2021 — a major concern considering the potential of a second coronavirus infection wave. However, there are some measures which could give the government more leeway to manage spending next year:

  • The Federal Accounts Court allowed the government to spend the remainder of this year’s budget until December 2021. Normally, spending authorizations expire at the turn of the calendar year. The move could create a “parallel budget” of BRL 40 billion (USD 7.6 billion), something the Economy Ministry was originally against.
  • Moreover, the government included a flexible primary deficit goal in its 2021 budget proposal, essentially freeing itself from pursuing fiscal targets. According to the International Monetary Fund, Brazil must push for structural reform in 2021, maintain its public spending cap, and reallocate resources into a permanent welfare system.

Paulo Guedes’ privatization Christmas list

The government announced its project to privatize 115 assets in 2021 — including nine state-owned companies, 24 airports, national parks, and multiple roadways and railways.

Why it matters. The goal is to raise BRL 367 billion in investment and raise money during what is set to be another year of sluggish growth.

Yes, but … Since his pre-government days, Economy Minister Paulo Guedes has been the most adamant defender of privatizing state-owned companies — but his record in office has been less than stellar, without carrying out a single successful privatization in almost two years. Back in August, he promised to announce “three or four major privatizations” within two months, but we are still waiting for them.

  • The plan announced on Wednesday is itself a trimmed version of Mr. Guedes’ goals. He said last month that the Port of Santos — Brazil’s busiest — would be in private hands by the end of 2021. But it wasn’t even included on his wish list.

5G. The government’s plan includes the 5G auction. Despite the Bolsonaro family’s recent attacks against China and Huawei, the rules for the auction reportedly do not include norms that would limit the Chinese telecom giant from participating. 

  • Newspaper Folha de S.Paulo reported that the technical report will include deadlines for regions to be covered by 5G, something that would be incompatible with a Huawei ban, as the company already has a major presence in Brazil’s telecom infrastructure.

Airports. While private companies running airports around the country fear collapse and demand government investment, the Infrastructure Ministry will auction off 24 airports on March 26, 2021. Hubs will be sold in blocks mixing more coveted locations with less profitable ones.

Health regulators move to allow emergency use of vaccines

As countries speed up the process of making coronavirus vaccines available, the Brazilian government seems to be backing away from its “vaccine-skeptic” stance. The National Health Surveillance Agency has paved the way to approve potential vaccines for emergency use — which would only be available in the public healthcare system and would require patients signing a waiver taking responsibility for whatever risks they might incur.

Why it matters. Eagerness for a coronavirus vaccine dropped between July and October — a span during which deaths and cases were down. Now that a second wave approaches, Brazilians start to be more open to vaccinating themselves.

  • Per a recent opinion poll, the demographics that are keenest for immunization include senior citizens (75%), highly-educated Brazilians (72%), residents of the North region, the first to experience a coronavirus-led collapse of health services (82%), and higher-income people (98%).

Good news. The São Paulo state government has received a shipment of inputs to produce 1 million doses of the Chinese-made CoronaVac. A previous shipment with the first 120,000 pre-manufactured doses arrived on November 19, and the state is waiting for regulatory clearance. 

Hospitals. With a surge in cases and deaths, private hospitals in São Paulo are suspending elective procedures and expanding their Covid-19 wings. With summer holidays beginning in a couple of weeks, Brazilians are expected to travel more, which could enhance transmission.

What else you need to know today

  • Reopening. Federal universities’ return to classes lasted for just a few hours. On Wednesday morning, the federal government published an ordinance establishing that in-person classes would resume as early as January. But the norm was revoked just hours later, following strong opposition from teachers’ unions, which complained that they had not been consulted by the Education Ministry. Speaking to CNN Brasil, Education Minister Milton Ribeiro admitted that “schools were not prepared [for such a quick return], there was no planning for that.”
  • Bonds. The Treasury Department raised USD 2.5 billion on Wednesday through international bonds maturing in 2025, 2030, and 2050 — an operation coordinated by Bank of America, Deutsche Bank, Itaú BBA, and JPMorgan. Strong demand pushed premiums down. According to officials, the 5-year-bond was offered at the lowest cost ever for Brazil in issuances in dollars.
  • Labor laws. The Supreme Court resumes a trial today on whether intermittent work should be abolished from Brazil’s labor legislation. This type of work contract was made legal by the 2017 labor reform. The case’s rapporteur, Justice Edson Fachin, voted to rule intermittent work unconstitutional, saying that “without a regulated minimum of hours and wages, intermittent work does not offer sufficient labor protections to workers.”
  • Submarine. Brazil’s nuclear submarine project could be compromised by multiple schedule delays. Shipyard ICN — a joint venture between the Brazilian Navy, Odebrecht, and France’s Naval Group — is reportedly seeking alternatives to avoid losing its workforce between the first stage of the project (the construction of four diesel-based submarines) and the second nuclear stage, as budgetary constraints will force a hiatus between the two phases.
  • Agro. Brazil’s all-time low interest rates are pushing more companies to raise money in the stock market. The move is set to reduce the underrepresentation of agricultural groups, with six of them filing for initial public offerings with the Brazilian Securities Commission (CVM) and more hiring banks to initiate the process. During the first half of the year, agribusiness was an outlier in Brazil, growing 6.75 percent between January and July.[/restricted]
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