Why this crisis is different from all others

. Jun 01, 2020
crisis The pandemic brought the Brazilian economy to a halt. Photo: Fernanda Carvalho/FP The pandemic brought the Brazilian economy to a halt. Photo: Fernanda Carvalho/FP

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We analyze GDP data in detail to understand the impacts of the coronavirus crisis in Brazil. Political violence could be part of our “new normal.”

The anatomy of impending crisis

Brazil’s GDP dropped 1.5 percent in the first quarter of 2020, announcing

the beginning of what could be the worst Brazilian recession on record. This crisis will be unlike all others, warns Rebeca Palis, head of National Accounts at the Brazilian Institute of Geography and Statistics. &#8220;For the first time in our recent history, the economy is suffering a shock in both demand and supply,&#8221; she says.</p> <ul><li>On the production side, the services sector was down 1.6 percent. The segment accounts for 70 percent of Brazil&#8217;s GDP.</li><li>Meanwhile, family consumption dropped 2 percent in the quarter — the worst since Brazil&#8217;s 2001 energy crisis. That drop could be more severe in the next few months, as the rate of people without a job is set to rise.</li></ul> <p><strong>Construction.</strong> Not even the labor-intensive construction sector — one of the biggest drivers of Brazil&#8217;s economic boom in the 2000s&nbsp;— is holding up. The segment is down 2.4 percent, despite the fact it was considered &#8220;essential&#8221; and allowed to continue during quarantines. &#8220;The real estate sector was bouncing back a little, but with social distancing, that has been lost,&#8221; says Ms. Palis. &#8220;So much so that there was a drop in the number of people employed in construction companies, as well as in the production of inputs.&#8221;</p> <div class="flourish-embed flourish-chart" data-src="visualisation/2652850" data-url="https://flo.uri.sh/visualisation/2652850/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <div class="flourish-embed flourish-chart" data-src="visualisation/2653072" data-url="https://flo.uri.sh/visualisation/2653072/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <div class="flourish-embed flourish-chart" data-src="visualisation/2653189" data-url="https://flo.uri.sh/visualisation/2653189/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <p><strong>Why it matters.</strong> Brazil seems to be in uncharted territory. The consensus among most nations during the Covid-19 crisis is that the state must intervene with anti-cyclical policies, but Brazil is short on fiscal space — and political will&nbsp;—&nbsp;to enact any such measures.</p> <p><strong>Future.</strong> The pandemic could create a &#8220;<a href="https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_745879/lang--en/index.htm">lost generation</a>&#8221; of young workers forced to perform precarious jobs. A report by the International Labor Organization says that young professionals are suffering from a triple shock. &#8220;Not only is [the pandemic] destroying their jobs, but it is also interrupting their education and training, placing enormous obstacles in their path,&#8221; says the report. The ILO expects young Latin Americans to be the worst-affected in the world.</p> <ul><li>&#8220;The job market doesn&#8217;t usually recover very quickly,&#8221; warns Ms. Palis.</li></ul> <p><strong>Trade.</strong> Unsurprisingly, trading was hampered by the coronavirus. Brazilian exports were down as two of its top three partners, China and Argentina, closed borders and went into strict lockdowns.</p> <h2>A weekend of protests and tension</h2> <figure class="wp-block-image size-large"><img src="https://brazilian.report/wp-content/uploads/2020/06/manofsstt05-1024x682.jpeg" alt="Pro-democracy demonstration ends in confrontation. Photo: Pam Santos/FP" class="wp-image-41180" srcset="https://brazilian.report/wp-content/uploads/2020/06/manofsstt05-1024x682.jpeg 1024w, https://brazilian.report/wp-content/uploads/2020/06/manofsstt05-300x200.jpeg 300w, https://brazilian.report/wp-content/uploads/2020/06/manofsstt05-768x512.jpeg 768w, https://brazilian.report/wp-content/uploads/2020/06/manofsstt05-610x407.jpeg 610w, https://brazilian.report/wp-content/uploads/2020/06/manofsstt05.jpeg 1280w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Pro-democracy demonstration ends in confrontation. Photo: Pam Santos/FP</figcaption></figure> <p>Since the beginning of the coronavirus pandemic, Brazil&#8217;s streets had been a stomping ground for supporters of President Jair Bolsonaro, organizing weekly protests against social isolation measures. That changed this weekend, as a group led by organized anti-fascist fan groups of São Paulo&#8217;s major football clubs marched together &#8220;for democracy&#8221; and against Mr. Bolsonaro on the city&#8217;s iconic Avenida Paulista. The rally happened at the same time as a pro-Bolsonaro demonstration&nbsp;—&nbsp;and the police intervened, throwing tear gas at the leftist groups.</p> <ul><li>According to a Military Police colonel, a brawl started after a group bearing neo-Nazi symbols began taunting the pro-democracy demonstrators.</li><li>The confrontation with the police motivated Congressman Eduardo Bolsonaro, the president&#8217;s son, to suggest that the government should label left-wing anti-fascist groups as &#8220;terrorist organizations.&#8221;</li><li>Meanwhile, pro-Bolsonaro Congressman Daniel Silveira used Twitter to <a href="https://twitter.com/danielPMERJ/status/1267163604459159553">threaten</a> anti-fascist protesters, saying he would &#8220;unload [his] gun clip&#8221; on them, in case of a confrontation.</li></ul> <p><strong>Why it matters.</strong> While it may sound as if we are repeating ourselves, political tensions have edged closer to a boiling point, with Sunday&#8217;s violence raising the stakes.&nbsp;</p> <ul><li>Anti-fascist groups called for more demonstrations next weekend — which could mean further confrontations.&nbsp;</li></ul> <p><strong>Weimar crisis?</strong> Over the weekend, Supreme Court Justice Celso de Mello sent a message to his colleagues, comparing the current moment to the crumbling of Germany&#8217;s Weimar Republic, after Adolf Hitler became chancellor. “With all necessary caveats, the ‘serpent’s egg’ seems to be ready to hatch, similar to what happened in the Weimar Republic,” he said, adding that the president&#8217;s supporters want nothing more than &#8220;a despicable and abject dictatorship.&#8221;</p> <p><strong>Not 300.</strong> Justice Mello&#8217;s words came after a group called &#8220;<a href="https://brazilian.report/power/2020/05/07/bolsonaro-far-right-wants-turn-brazil-into-2013-ukraine/">Brazil&#8217;s 300</a>&#8221; staged a nighttime protest outside of the Supreme Court with tiki torches —&nbsp;clumsy plagiarizing the Klu Klux Klan&nbsp;—&nbsp;chanting that the “Supreme Court won’t shut [them] up.” While some photos suggested a sizable event, a surveillance camera in the area showed that Brazil&#8217;s 300 were not even 50.</p> <div class="wp-block-image"><figure class="aligncenter size-large"><img src="https://brazilian.report/wp-content/uploads/2020/06/ezgif.com-optimize-1.gif" alt="Brazil's 300 neonazi groups" class="wp-image-41179"/><figcaption>Brazil&#8217;s 300 were not even 50. Video: Surveillance camera</figcaption></figure></div> <hr class="wp-block-separator"/> <h2>Markets</h2> <p>On Friday, Embraer stocks spiked 15 percent after news that airplane manufacturers COMAC (China) and Irkut (Russia) are interested in the Brazilian company, after the collapse of the historic Boeing merger. According to Bradesco BBI, this is not necessarily good news, as “new M&amp;A talks could entail a lower valuation than in the Boeing deal.” The bank sticks with a target price of USD 4 in 2020 and an &#8220;underperform&#8221; rating for the stock, down 64 percent in the year.</p> <hr class="wp-block-separator"/> <h2>Good May performance confirms odd year for stocks</h2> <p>This year has been such an atypical one for stock markets that even the old adage &#8220;sell in May and go away&#8221; does not apply. Stock markets usually post lower returns in May —&nbsp;but in 2020, Brazil&#8217;s benchmark Ibovespa index rose 8.5 percent —&nbsp;the best result for the month in 11 years and second-best in the world, behind only Argentina. However, that has a lot to do with the awful starting point this May. Brokerages expected Brazil&#8217;s stock market to close the year at 120,000 points —&nbsp;but projections have been lowered to just 94,000 since the pandemic crisis began.</p> <div class="flourish-embed flourish-chart" data-src="visualisation/2653963" data-url="https://flo.uri.sh/visualisation/2653963/embed"><script src="https://public.flourish.studio/resources/embed.js"></script></div> <hr class="wp-block-separator"/> <h2>Looking ahead</h2> <ul><li><strong>Reopening.</strong> Several states begin a reopening process today following at least two months of quarantines. This includes Amazonas, a state which experienced a complete health collapse, and São Paulo, which has the highest absolute numbers for infections and deaths. Experts, however, warn that the return is taking place too soon, and that infection curves could spike within the next few weeks. Despite the move by the governor&#8217;s office, the city of São Paulo (which alone has 65,000 cases and 4,300 deaths) will remain under quarantine for two more weeks.</li><li><strong>Electoral Court.</strong> On Friday, President Jair Bolsonaro and Vice President Hamilton Mourão were given three days to answer accusations that their campaign used an illegal scheme to send hundreds of millions of messages to voters information smearing other candidates. The scheme was allegedly paid for by business owners, which is also an electoral crime. The move by the court is, in itself, standard procedure —&nbsp;but it came just days after the Supreme Court launched an <a href="https://brazilian.report/newsletters/brazil-daily/2020/05/28/supreme-court-fake-news-probe-brazil-unemployment-pandemic/">operation against a far-right fake news ring</a>. If the president&#8217;s campaign is found guilty, the <a href="https://brazilian.report/power/2020/05/23/way-oust-bolsonaro-not-impeachment-electoral-court/">election is voided</a> and a new race must be called.</li><li><strong>Jobs.</strong> The Senate should vote this week on a provisional decree by President Jair Bolsonaro allowing companies to cut workers&#8217; hours and wages&nbsp;—&nbsp;which will be partially compensated by the government. In the House, the president&#8217;s new alliance with the so-called &#8220;Big Center&#8221; (that is, traditional parties that trade support for high-profile executive positions) paid off. The administration was able to block a proposal to raise the ceiling for the compensation. The Senate vote will be a new test.</li></ul> <hr class="wp-block-separator"/> <h2>In case you missed it</h2> <ul><li><strong>Covid-19.</strong> Brazil passed the threshold of 500,000 infections, but the actual number of cases could be up to ten times bigger, according to some experts. Meanwhile, 29,000 people have died of the <a href="https://brazilian.report/coronavirus-brazil-live-blog/">coronavirus</a> —&nbsp;and data from the Health Ministry considering the spike in deaths and cases of acute respiratory distress syndrome suggest the number could be 140 percent higher. Newspaper O Estado de S.Paulo broke that President Jair Bolsonaro was <a href="https://brazilian.report/coronavirus-brazil-live-blog/2020/05/31/intelligence-agency-warned-bolsonaro-repeatedly-about-covid-19/">repeatedly warned</a> by intelligence briefings about the need for strict social distancing measures against the virus. Still, Mr. Bolsonaro has been an adamant opponent of quarantines.</li><li><strong>Unemployment crisis. </strong>The rate of <a href="https://brazilian.report/newsletters/brazil-daily/2020/05/29/covid-19-sees-unemployment-skyrocket-in-record-time/">Brazilians without a job</a> has gone from 11.2 to 12.6 percent between January and April. According to Itaú Unibanco, Brazil&#8217;s biggest private bank, the rate would be around 16 percent already if more people were actively looking for work — something that the pandemic has halted. A total of 4.9 million people lost their jobs, and 3.7 million of them were from the informal market.</li><li><strong>Corruption.</strong> Rio de Janeiro Governor Wilson Witzel and his wife were targeted by a Federal Police operation. The couple is accused of receiving kickbacks from companies hired to build field hospitals for Covid-19 patients. The construction of the temporary hospitals was reportedly overpriced on several items, from Covid-19 ventilators to water tanks. Mr. Witzel&#8217;s deputy health secretary had already been arrested weeks before in the same case. The Feds believe Mr. Witzel used his wife&#8217;s law firm to receive and launder the money — a scheme widely used by defendants of Operation Car Wash. The governor denies any wrongdoing and called the operation a &#8220;<a href="https://brazilian.report/power/2020/05/27/is-there-foul-play-in-rio-de-janeiros-covid-19-corruption-probe/">political hit job</a>&#8221; ordered by the president.

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