Every day we are bombarded with news related to the Covid-19 pandemic, its impact on health, the economy and the world at large. This is very important, because reliable information is the best weapon to combat Covid-19, related to public health and the global economy.
It makes no difference in Brazil. More than 2 million people tested positive for Covid-19, with 80,000 deaths. This will have a profound effect on us socially and economically.
Market forecasts, in periodic bulletins from the Central Bank of Brazil, are less pessimistic than some distributed by international agents. Earlier this month, the International Monetary Fund projected a decline in Brazil’s economic activity by 9.1 percent this year, while the World Bank projected an 8 percent withdrawal. The Central Bank of Brazil, however, sees a 6.4 percent withdrawal in the economy this year.
In any case, a significant decline in economic activity affects the country in a year where a stronger economic recovery is expected. In early 2020, when the new coronavirus pandemic was concentrated in China and it was unclear when and how it would arrive in Brazil, experts estimate annual economic growth of around 2.3 percent.
Market and domestic policies
In an effort to curb sales momentum and at the same time give investors time to understand what has happened in the past few months, circuit breakers on the Brazilian stock exchange have resurfaced, and have also been practiced on other stock exchanges around the world. But Ibovespa had the best second quarter since 1997 and accumulated an increase of around 50 percent, supported by global liquidity that was expanded by measures to combat the economic impact of Covid-19, in addition to lowering base interest rates to historic lows.
Basic Sanitation Law, recently approved by the Brazilian parliament, created new regulatory references with the aim of universalizing water supply and sanitation services, and modernizing the most backward sectors of national infrastructure. This allows a large increase in investment in the collection and treatment of wastewater and water supply networks, with the potential to generate more than 1 million jobs in this sector alone.
To minimize the impact of the pandemic, the federal government has approved R $ 90 billion ($ 17.5 billion) in emergency assistance for around 64.1 million Brazilian recipients. In addition, the Brazilian Central Bank estimates that it will issue up to $ 55 billion in credit to small companies.
The strong tendency towards concessions and public-private partnerships also tends to heat up the Brazilian economy, attract resources and produce jobs. In the Northeast region of the country, the transposition of São Francisco river waters to arid regions, as well as the seawater desalination and artesian well drilling projects, are examples of this effort.
Despite the Covid-19 pandemic, Brazil continues to record a positive trade balance. In June the surplus was $ 7.46 billion, according to data from the federal government. That’s the best trade balance for June since records began in 1989. This is largely due to agriculture, which grew 23.8 percent this year, compared to the same period last year.
In another initiative to combat the challenges posed by the Covid-19 pandemic, the Brazilian government, through the Securities and Exchange Commission (CVM), issued a series of initiatives aimed at holding a shareholder meeting. The published rules are another indication of the efforts of CVM and market participants have jointly undertaken to make capital market events continue to occur.
Greater optimism has led some analysts to revise their Ibovespa projections to the top. Goldman Sachs, Bank of America and XP Investimentos all outlined new scenarios, more positive for Brazil’s main stock index in 2020, including considering important phenomena from retail investors in Brazil. Since the beginning of the year, there have been records of the number of individuals entering B3, which has helped reduce the impact of foreign investor outflows.
Market agents oversee risks to emerging economies, especially the Brazilian economy, amid a very challenging scenario caused by a coronavirus pandemic. However, with excess liquidity in the world and a sharp decline in Ibovespa, investors have found a reason to evaluate the national stock market with a better eye.
André Vasconcellos is director of the Brazilian Institute of Investor Relations (IBRI) and leads investor relations at Electrobras