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Brazilian markets buoyant about recovery, despite Covid-19 chaos

While international actors are predicting huge GDP losses for Brazil in 2020, domestic investors are far more optimistic

The Covid-19 pandemic has pushed the Brazilian economy into one of its worst periods of recession, with GDP expectations for 2020 hitting -9.1 percent, according to the International Monetary Fund. However, amid this pessimism from global actors, expectations from the market are far more favorable. The latest forecasts show a slide of “just” -5.04 percent for the year, suggesting that investors in Brazil are more bullish about Brazil’s post-coronavirus recovery.

This trend of optimism kicked off in September. According to confidence indexes measured by think tank[restricted] Fundação Getúlio Vargas (IBRE-FGV), business owners in both industry and commerce are already placing more trust in the economy than they did before the pandemic began. In fact, when analyzing industry alone, the 106.7-point confidence index is the highest for September.

For outside observers, this refreshed level of confidence may come as a surprise. Over 1,000 Covid-19 deaths were recorded in Brazil on Wednesday, and some major cities are weighing up new lockdowns amid a resurgence of the virus spread. In reality, however, Brazil has been forced to live with the pandemic, out of a mixture of necessity and careless denialism propagated by President Jair Bolsonaro and his allies. 

According to IBRE-FGV economist Rodolpho Tobler, Brazil’s recovery is being propped up by the federal government’s emergency salary program, which paid out BRL 600 (USD 106) in monthly aid to the unemployed and informal workers. “[The program] promoted an increase in income and supported some form of economic activity,” he tells The Brazilian Report. Indeed, the emergency benefit had significant and near instantaneous effects on the Brazilian population. Almost overnight, 13.1 million Brazilians were lifted out of poverty, causing a direct impact on their purchasing power. 

Eye on a vaccine

The next phase of Brazil’s economic recovery appears to be inextricably linked to the success of at least one of the several potential Covid-19 vaccine projects underway, many of which are now in phase three clinical trials. Speaking to The Brazilian Report, economist and Mackenzie University professor Jefferson Prado says that the expectation of a future vaccine alone is key to reinstill trust in the economy. This, in a short-term scenario, could allow services sectors to resume their activities and have more people circulating on the streets.

When the money dries up

A major factor in Brazil’s recovery equation concerns the future of the emergency coronavirus aid program. Deemed as being painfully expensive for the federal government, the monthly benefits have already been cut in half to BRL 300, and the program will expire completely come the end of the year.

According to government data, over 67 million people in Brazil currently receive monthly coronavirus benefits. “Depriving them of [this aid],” says Mr. Tobler, “could add to the growing trend of unemployment,” which hit 13.8 percent in late July, meaning 13.1 million Brazilians are currently out of work.

“For the months to come, the recovery scenario must be maintained, but there is still a lot of uncertainty around its sustainability: mainly due to consumer caution, the worsening of the labor market situation, and the end of the government’s aid programs,” Mr. Tobler adds. [/restricted]

By Lucas Berti

Lucas Berti covers international affairs — specialized in Latin American politics and markets. He has been published by Opera Mundi, Revista VIP, and The Intercept Brasil, among others.