IBGE (Brazilian Census Bureau) data for the second quarter of 2020 have been published, according to which Brazilian GDP has fallen by 9.7% compared to the first quarter and by 11.4% compared to the same quarter of 2019 .
This is a dramatic decrease, but lower than the average expectations of economic operators, who expected a decrease of close to 15% compared to the first quarter. JPMorgan, for example, has already revised its forecast regarding the 2020 GDP performance, taking it from -6.2% to -5.2%. The forecast is that, in the third quarter of 2020, GDP will show growth close to 6%, beginning a phase of strong economic recovery.
According to analysts, one of the components that mitigated the effects of the devastating crisis caused by the coronavirus was the emergency aid (“auxilio emergencial”) of R$ 600.00 per month issued by the government in favor of the most needy families. Thanks to this money transfer, household consumption has decreased “only” by 13.5% and has allowed many people to survive and the economy to continue to run (in addition to avoiding disastrous social conflicts).
However, the pandemic does not yet give clear signs of deceleration and Brazil has exceeded the record level of 125,000 deaths from Covid-19. Almost six months after the first restriction measures, a large part of the population has resumed their daily routine, although still with many limitations.
A study carried out by the “Economatica” agency on behalf of the newspaper “O Estado de São Paulo” and published on August 31 ( https://economia.estadao.com.br/noticias/geral,lucro-das-empresas-de-capital-aberto-tem-queda-de-81-9-no-1-semestre,70003419399 ) analyzed the data of the second quarter 2020 financial statements published by 189 non-financial companies, both public and private, with open capital. The data allow us to take stock of the effects of the coronavirus crisis on the performance of Brazilian companies and obviously present many shadows but also some unexpected light.
First the shadows: the profitability of the analyzed companies decreased on average by 81.9% compared to the same period of 2019 (reduction from 49 to 9 billion reais). Among the companies least affected by the crisis are those in the agri-food, industrial machinery and electricity sectors.
The positive figure concerns the trend in turnover (in reais), which grew in the first half of 2020 by 7% compared to the first half of 2019: large distribution (+ 27.7%), food sector (+ 25.5%), health (+ 24.1%), agri-food (+ 21.5%), industrial machinery (+ 20.6%), paper and cellulose (+ 13.1%) and electricity (+ 4.8%) grew significantly.
The discrepancy between the good result of the turnover and the bad result in terms of profits is due, according to the analysts of Economatica, to the strong devaluation of the real against the dollar (-36%) which took place in the first months of 2020.
Many companies have debts accounted for in dollars, which explains the poor performance of profits.
The government is currently deciding to extend emergency aid to needy families, which should however go from R$ 600.00 to R $300.00 per month.
Good news from the agri-food sector: for the 2020/21 harvest an 8% growth in volume is expected compared to the previous period, for a total of 278 million tons. Driven by the increase in international prices, soy must take the lion’s share, with a 3% increase in cultivated areas (about 37 million hectares). As in 2019, agri-food will probably save Brazilian GDP in 2020 as well.
On 3 September the government presented the guidelines from the administrative reform, which aims to rationalize the public service and decrease the privileges linked to public careers and consequently personnel expenses. The proposal will have to be discussed by Parliament and will predictably cause quite a few protests from public employees.
September will be an important month for the water treatment industry. After the approval of the new regulatory framework (Lei do saneamento) that opened the sector to private initiative, the first auctions for local concessions begin. The first auction, which will take place on 14 September, will concern a public-private partnership (PPP) for the management of sewers in the municipality of Cariacica (387,000 inhabitants) in the state of Espirito Santo; the second will take place on 22 September and will concern the Sanesul PPP, which involves 68 municipalities in the state of Mato Grosso do Sul; the third – most coveted – will take place on 30 September and will concern the concession of the Casal, which manages 13 cities in the hinterland of Maceió (capital of the state of Alagoas).
Of note is the birth of the “Alliance for the Amazon”, an initiative that already brings together more than one hundred leaders (researchers, entrepreneurs, managers, economists, politicians, military and environmentalists) interested in learning about the region, discussing how to develop their potential without cutting down the forest and improving the quality of life of the population. An effort by civil society to defend the Amazon and debate its role, social and economic, at the national and international level. The goal is to provide answers to the questions and concerns about the conservation and preservation of the forest, answers that the Bolsonaro government is unable or unwilling to give.
Here is the trend of the main indicators:
GDP (Value added at market prices)
|GDP – real growth (%)||0,5%||-3,5%||-3,3%||1,0%||1,1%||1,17%||-5,31%|
The forecasts of economic operators regarding 2020 GDP are still improving, which on average estimate a decrease of -5.31% compared to -5.66% a month ago.
For 2021, the Focus research confirms the growth forecast of 3.5%.
The result for the second quarter of 2020 was less worse than expected, confirming the moderate optimism of the market.
Brazil could be one of the countries least affected by the coronavirus crisis, at least from an economic growth point of view.
Inflation and real/dollar exchange
|IPCA (IBGE – %)||6,40%||10,7%||6,29%||2,95%||3,69%||4,20%||1,78%|
The 2020 inflation estimate is slightly up: + 1.78% compared to + 1.63% a month ago.
There are signs of more sustained growth in inflation, which involves basic food products. Bolsonaro himself, in one event, appealed to the leaders of large retailers to behave patriotically and contain the increase in the price of food. If the anchor of low inflation were to break, it would be a big problem for Banco Central and its low interest rate policy.
|Exchange rate R$/US$ (end of the period)||2,66||3,90||3,25||3,25||3,75||4,01||5,25|
The dollar is quoted today at R$ 5.39, up slightly from a month ago. Despite the weakness of the dollar internationally, the real has not yet shown any appreciation.
There is no significant flow of investments from abroad and the discount rate at historic lows makes Brazilian public debt securities unattractive.
The estimate of the dollar price for the end of 2020 is around R$ 5.25.
The euro price today is R$ 6.36, up compared to a month ago.
|Nominal Interest rate (end of the períod)||11,8%||14,9%||13,8%||7,00%||6,50%||4,50%||2,00%|
|Real interest (deflactor: IPCA)||4,20%||2,60%||6,91%||4,05%||2,81%||0,30%||0,22%|
The market continues to expect the SELIC (discount rate) to close 2020 at 2.00%.
If the signs of the rekindling of inflation were to strengthen, it is certain that Banco Central interrupts the downward path that has been prolonged for almost four years (in October 2016 the SELIC was at 14.25%).
The real interest rate, discounting inflation, is approaching zero.
The Brazilian stock market (Bovespa)
The Brazilian stock exchange was essentially stationary, fluctuating at around 100,000 points for the entire last month. On 8 August 2020 it is around 101 thousand points.
Since the onset of the coronavirus crisis, the Bovespa index has lost 11% in reais, 26% in dollars and 32% in euros.
The market reacted positively to the GDP figures for the second quarter and to the presentation of the government reform proposal by the Government. The announcement of the possible discovery of the anti-Covid 19 vaccine by Russia also fueled a certain euphoria in August, which however diminished as the days passed. Foreign investors have not yet returned to investing significantly in Bovespa and the rekindling of inflation could create a further brake.