Brazil is a Covid mess but its economy is still outperforming

Pedestrians wearing protective masks walk along Ladeira Porto Geral street in Sao Paulo, Brazil, on Thursday, 30 July, 2020.| Jonne Roriz/Bloomberg

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New York: Brazil, home to the most severe Covid-19 outbreak in Latin America, is emerging with the region’s shallowest recession this year, thanks to a faster economic reopening and temporary stimulus measures.

The nation that trails only the U.S. as a global virus hotspot has seen key indicators including industrial output and retail sales outstrip economist expectations just as stores and factories resume operations and the government spends billions of dollars worth of emergency aid.

Economists watching mobility trends during the pandemic also see evidence that Latin America’s largest economy is leading the way. Gustavo Rangel, ING Financial Markets’ chief economist for the region, points to workplace-visit data that shows “a faster recovery in Brazil” compared with its neighbors.

“Brazil benefited from keeping certain sectors of the economy open,” said Marco Oviedo, Barclays’ head of Latin America Economics Research. He cautioned, however, that returning to work shouldn’t mean ignoring social distancing recommendations. “You have to send a message that this is serious.”

The recent data has led Brazil’s central bank chief Roberto Campos Neto to call his own institution’s forecast, of a 6.4% economic contraction, too pessimistic. Economists polled by the bank see a 5.6% drop. Either way, it’s well ahead of major regional peers, Mexico and Argentina, which are forecast to shrink by 9.8% and 12.5%, respectively.

On Thursday, the national statistics institute provided more evidence Brazil’s economy was on the mend: services sector activity rose in June from the previous month for the first time since January, as Brazilians return to restaurants and start flying again.

Investors have taken note and driven Brazil’s benchmark stock index more than 30% higher over the past three months.

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