Brazil sliding toward another technical recession

. Feb 18, 2021
brazilian economy recession 2021 São Paulo City Center. Photo: Alf Ribeiro/Shutterstock

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Today, we address the grim expectations for the Brazilian economy. Petrobras’ controversial sale of an oil refinery to the Mubadala fund. And what will happen to the lawmaker arrested for posting a video online.

Economy: The Ghost of Recessions Yet-To-Come

Economists expected activity to drop in Q1 2021, but projections are now indicating

another slump in Q2, which would put Brazil into a technical recession. The growing pessimism comes as Covid-19 cases and deaths continue to rise, vaccination rollout is stuttering, and Congress has yet to come up with a new cash-transfer policy to replace the defunct emergency salary.</p> <ul><li>Among banks and investment firms, the most optimistic scenario for the Brazilian economy is a stagnant first half of 2021.</li></ul> <p><strong>Why it matters.</strong> Economic confidence is dwindling among both business owners and consumers — which could limit investment and spending on goods, deepening the recessive process.</p> <p><strong>Costly delays.</strong> Besides its clumsy — and some would say borderline criminal — health response to the pandemic, the government has also bungled its handling of the economic crisis. We are almost in March, and the Economy Ministry has yet to come up with a solution to reinstate some form of cash-transfer policy without causing Brazil&#8217;s already high public debt to skyrocket. Meanwhile, millions continue to fall below the poverty line as the pandemic cripples the revenues of poorer Brazilians.</p> <ul><li>This delay stems from a misdiagnosis of the economic crisis. The government believed that the economy would approach normality once social isolation rates fell. However, the resurgence of infections has brought us back to early 2020 — with the government analyzing ways to restrict citizens&#8217; mobility in order to curb the spread of the virus.</li></ul> <p><strong>Interest.</strong> The outlook for Brazilian benchmark interest rates rose to 3.75 percent by the end of the year, its highest since last May, according to the latest edition of the Focus Report — a weekly survey by the Central Bank with top-rated investment firms. Four weeks ago, the average 2021-end outlook was 3.25 percent.</p> <p><strong>Economy affects polls.</strong> In a matter of two weeks, President Jair Bolsonaro&#8217;s rejection ratings jumped from 41 to 48 percent, according to a <a href="https://www.poder360.com.br/poderdata/rejeicao-ao-trabalho-de-bolsonaro-volta-a-48-o-recorde-na-pandemia/">poll</a> by news website Poder360. This is the highest level since Mr. Bolsonaro took office. Among wealthier Brazilians — from whom the president once enjoyed widespread support — rejection has hit 67 percent.</p> <hr class="wp-block-separator"/> <h2>Oil workers slam Petrobras deal, call for strike</h2> <p>Last week, Brazil&#8217;s state-controlled oil and gas company Petrobras announced a USD 1.65-billion deal with Emirati sovereign wealth fund Mubadala Capital for the Landulpho Alves Refinery in Bahia. But a study by the Institute for Strategic Studies in Oil, Gas, and Biofuels (Ineep) suggests the refinery is worth between USD 3 and 4 billion.</p> <ul><li>Ineep&#8217;s appraisal is based on the refinery&#8217;s cash flow and projections for revenues and expenses for the coming years.&nbsp;</li></ul> <p><strong>Strategy. </strong>Ineep is linked to an oil workers&#8217; union which opposes the deal, and the study could serve as grounds for a legal challenge. Unions in Bahia called for a strike today as a way to force Petrobras to reconsider the deal.</p> <ul><li>Workers fear that new owners would carry out massive layoffs. They ask Petrobras to wait until the pandemic is over before deciding what to do with its refineries.</li></ul> <p><strong>What they are saying.</strong> Petrobras defends its deal and says the values were calculated and audited by independent financial institutions. Moreover, the company says the sale is not yet completed, as it requires approval from the board of directors and antitrust regulators.</p> <p><strong>Why it matters.</strong> The sale of the Landulpho Alves Refinery is part of Petrobras&#8217; wider plan to sell seven such facilities in 2021. If workers are successful, the plan would be jeopardized.</p> <hr class="wp-block-separator"/> <h2>House to weigh in on freedom of speech today</h2> <p>On Wednesday, the Supreme Court upheld a decision made by Justice Alexandre de Moraes to arrest Congressman Daniel Silveira — who had posted a video on social media inciting a military coup and the shutdown of the court. With a rare 11-0 vote, justices hoped to draw a line in the sand when it comes to criticism of its members.</p> <ul><li>Now, the House floor must vote on whether to confirm the arrest or let Mr. Silveira off the hook. Party whips are set to meet early in the afternoon to decide which way they will lean on the issue.</li></ul> <p><strong>Why it matters.</strong> Lawmakers are in a pickle. They do not want to create a precedent for outside interference in Congress nor allow the Supreme Court to weaken the guarantee of parliamentary immunity. However, lawmakers equally have no interest in creating conflict with the Supreme Court — the venue in which at least 10 percent of the House&#8217;s members face criminal prosecution.</p> <p><strong>Split the baby.</strong> Allies of House Speaker Arthur Lira are trying to negotiate a compromise with the Supreme Court. One of the proposed ideas would be to sanction Mr. Silveira in the House&#8217;s Ethics Committee, recently revived after remaining dormant for over a year due to the pandemic.</p> <p><strong>Justifiable means?</strong> The arrest of Mr. Silveira comes as part of a highly questionable probe on the use of fake news against public authorities — a case in which the Supreme Court acts as plaintiff, judge, juror, and executioner. Moreover, the arrest is based on the National Security Law, a legal device traditionally used by former authoritarian regimes to silence dissent.</p> <ul><li>&#8220;What Daniel Silveira said is appalling, but the arrest has no legal grounds,&#8221; says lawyer Augusto de Arruda Botelho, a counselor at Human Rights Watch. &#8220;He was arrested <em>in flagrante</em>, but that does not apply to posting a video online. A person can only be arrested <em>in flagrante</em> when he/she is caught in the act committing a crime or fleeing from it.&#8221;</li></ul> <iframe src="https://open.spotify.com/embed-podcast/episode/6cEf5vsJPgAyDkDOtoaUbX" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe> <hr class="wp-block-separator"/> <h2>What else you need to know today</h2> <ul><li><strong>Aviation.</strong> Shares of <a href="https://brazilian.report/newsletters/brazil-daily/2019/08/19/embraer-50-years-brazil-plane-maker-reaches-crossroads/">Brazilian planemaker Embraer</a> jumped 14 percent on Wednesday after news broke that Lufthansa has initiated talks for potential aircraft purchases. The German airline&#8217;s CEO, Carsten Spohr, said the company will have to adapt its fleet from bigger to smaller models — in line with the tepid air travel market caused by the pandemic. </li><li><strong>Economy. </strong>Since 2015, the National Electric Energy Agency has hiked electricity tariffs for consumers whenever producers face higher costs. In 2020, however, these extra charges were lifted between June and November as part of a pandemic-related relief package. Regulators, however, will have to compensate producers this year — which will mean Brazilian consumers will pay an<strong> </strong><a href="https://g1.globo.com/economia/noticia/2021/02/18/bandeira-tarifaria-tem-deficit-de-r-3-bi-em-2020-diz-aneel-valor-sera-cobrado-nas-contas-de-luz.ghtml">extra</a> BRL 3.1 billion (USD 573 million) on their electricity bills.</li><li><strong>Tech 1.</strong> WhatsApp said that it is in talks with Brazil’s Central Bank to gain approval as a payment initiator for transfers between people. The monetary authority suspended the company&#8217;s new instant payment service WhatsApp Pay in June, a few days after launch — due to uncertainties about its impact on <a href="https://brazilian.report/podcast/2020/11/04/explaining-brazil-podcast-banking-instant-payment-pix-up-steam/">competition on the payments sector</a>.</li><li><strong>Tech 2.</strong> As contactless payments soar in Brazil amid the pandemic, credit card operator Cielo will start using <a href="https://brazilian.report/tech/2019/11/29/tech-roundup-brazil-facial-recognition-make-arrests/">facial recognition</a> for in-person purchases. The new solution is the result of a partnership with Payface, a startup based in the southern state of Santa Catarina. A trial phase will be launched today in a São Paulo flagship drugstore and, if successful, expanded to other venues. According to manufacturers, people will be <a href="https://brazilian.report/tech/2020/03/06/brazil-made-facial-recognition-beats-plastic-surgery/">recognizable</a> even while wearing masks.</li><li><strong>Curfew.</strong> Following the lead of Bahia, another northeastern state will impose a <a href="https://g1.globo.com/ce/ceara/noticia/2021/02/17/toque-de-recolher-entre-22h-e-5h-e-implementado-no-ceara-por-dez-dias-a-partir-de-quinta-18-diz-camilo.ghtml">curfew</a> to tame the spread of the coronavirus. Starting today, Ceará will allow only essential businesses to operate after 8 pm, and citizens must remain off the streets as of 10 pm. The measure comes after the number of Covid-19 patients needing intensive care tripled in Ceará between January 18 and February 17.

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