Pandemic Epicenter, Brazil Leads Economic Rebound in Latin America

RIO DE JANEIRO, BRAZIL – Brazil, faced with the most severe Covid-19 outbreak in Latin America, emerges with the mildest recession in the region this year, driven by a faster economic reopening and temporary stimulus measures.

Behind only the US as the global epicenter of the virus, the country has posted a performance exceeding economists’ projections in indicators such as industrial production and retail sales, amid the reopening of factory operations, and billions in emergency government aid.

Economists tracking mobility trends in the pandemic also note evidence that the country is leading the rebound. Gustavo Rangel, ING Financial Markets’ chief economist for the region, points to data from worksite visits that show a “faster rebound in Brazil” compared to neighboring countries.

“Brazil has benefited by keeping some economic sectors open,” said Marco Oviedo, Barclays’ head of economic research for Latin America. However, he cautioned that returning to work does not imply ignoring the social distancing guidelines. “We need to convey the message that this is serious.”

Recent data led Central Bank President Roberto Campos Neto to consider the institution’s own projection too pessimistic – a 6.4 percent drop in GDP in 2020. The Focus survey points to a 5.6 percent contraction this year. In any case, the estimate is much better than the projections for its main regional competitors, Mexico and Argentina, which are expected to contract by 9.8 and 12.5 percent, respectively.

The outlook has not escaped investors’ attention and the IBOVESPA index has accumulated 30 percent growth in the past three months.

However, economists fear that the continued spread of the virus in the country could still slow economic recovery. And many caution that the better-than-expected indicators may be more related to assistance programs than to easing quarantine restrictions.

Moreover, GDP alone does not determine the health of an economy. The impact of the virus in Brazil, with over three million cases and more than 100,000 deaths, has even prompted some of the most market-oriented politicians to question President Jair Bolsonaro’s urge to prioritize jobs.

As Bolsonaro pushes to reopen companies at any cost, Latin American governments face the dilemma of determining to what extent economies should remain open – and how to keep them afloat when they close – while simultaneously fighting the spread of the virus.

“You have all these different experiments in the region with different degrees of quarantine, but with little success,” says Liliana Rojas-Suarez, director of the Latin America Initiative at the Center for Global Development. “The issue is that it’s simply not feasible.”

Saving jobs is particularly difficult in Latin America, where over half the labor force is in the casual market. Barclays estimates that more than 27 million jobs have already been lost.

In other countries, governments have imposed much more stringent measures.

Quarantines are still in place in Chile and Argentina. Both countries’ capitals, Santiago and Buenos Aires, tried to suspend quarantines in the first days of the pandemic, but were forced to implement them again. Colombia and Peru kept their economies closed until April. And Mexico maintained the building and manufacturing sectors closed until June.

Given the uncertainty surrounding the fight against the virus, economists chose not to single out a successful strategy for the time being. And as Alberto Ramos, the head of research for Latin America at Goldman Sachs, points out. any rebound is relative. “As these figures come after such a massive collapse, there is no reason for a victory lap,” he said.

Source: Bloomberg