As days pass by and the covid19 situation develops it is paramount to gain knowledge of what’s going in the world. Keeping that in mind, Platts has published this COVID19 Business update which we are highlighting here
COVID19 May 26 Daily Update
While Asian countries, E.U. nations, and U.S. states piece together playbooks for reopening their respective economies, Latin America is facing the worst of the pandemic as infections surge across the region.
South America Becomes Epicenter
“In a sense, South America has become a new epicenter for the disease,” Mike Ryan, the World Health Organization’s emergencies program director, said at a news conference on May 22. “We’ve seen many South American countries with increasing numbers of cases, and clearly there’s a concern across many of those countries, but certainly the most affected is Brazil at this point.”
Since Brazil confirmed its first infection in São Paulo on February 26, approximately 375,000 cases have been reported in the country, the second-highest total of infections worldwide behind the U.S., according to Johns Hopkins University data.
Economic Situation in Brazil
Experts believe the total is dramatically higher due to underreporting in the rainforest communities, provincial towns, and favela settlements. The rural Brazilian state of Amozonas has the highest infection rate of the country, according to the WHO. This highlights how “we are seeing a greater impact in terms of disease, disease severity, [and] poor outcomes in groups that are vulnerable” and facing inequalities, Dr. Maria Van Kerkhove, the organization’s technical lead for the coronavirus response, said on May 22.
The 2014-2016 economic crisis in the country exacerbated conditions for populations of low socioeconomic status. According to the World Bank, Brazil’s poorest 40% across every state had lower incomes in 2018 than during the recession in 2014. Income equality in Brazil spiked last year to the highest levels seen since 2012. Now, the COVID-19 crisis will have an outsized adverse effect on such at-risk people.
Energy and business sectors within the country are also navigating the economic uncertainty and market volatility brought on by the current crisis.
- Additionally, S&P Global Ratings forecasts this year Brazil’s GDP will contract 4.6% and the Latin American region GDP as a whole to shrink 5.2%.
- Recoveries across the region are anticipated to be uneven, as some countries, like Chile and Peru, have responded with more robust economic responses and effective virus-containment measures, while others, like Mexico, have implemented weaker stimulus measures to fight the coronavirus-cased downturn.
Prior to the pandemic, the region’s economic and fiscal outlook was already weakened. S&P Global Ratings currently has selective default ratings on three countries in the region: Argentina, which defaulted before the pandemic and subsequent global economic downturn in August 2019, and then defaulted again on additional debt in December 2019, January 2020, and April 2020; Venezuela, which has had this rating since 2017; and Ecuador, which was rated selective default in April 2020 due to the pandemic.
What it means for the World Economy?
According to S&P Global Platts, hydrous ethanol prices in Brazil’s Center-South assessed on May 21 were seen to have experienced a fraction of the notably larger positive price move, which has almost doubled during the previous four weeks, seen across international energy markets.
- Additionally, when the Brazilian Real to U.S. dollar exchange rate strengthened in May, Brazil free-on-board ethanol prices rallied from the year’s lows.
- Because the most recent price data on the Brazilian Real to U.S. dollar exchange rate has a current 100-day historic volatility of 20% (compared to the U.S. Dollar Index having a 100-day historic volatility of 9.2%), within the next 100 days the Brazilian Real could have a potential trading band of Real 6.67/$1 USD or Real 4.45/$1 USD.
- The daily movements of the exchange rate equate into relative percent price swings in the Brazilian ethanol FOB priced in U.S. dollars.
Brazilian banks’ first-quarter results showed the pandemic’s pain, although the brunt of its implications had yet to reach Latin America. Three of the largest banks in country—Banco do Brasil S.A., Banco Bradesco S.A., and Itau Unibanco S.A.— significantly increased their provisions for credit losses, thus jeopardizing their bottom-line results, according to S&P Global Ratings. Banks’ asset quality is expected to decline in the second quarter of this year, and companies in vulnerable sectors, including importers due to Brazil’s sharply weaker currency, are likely to still suffer.
Recovery Next Year?
S&P Global Ratings expects Brazil will see a moderate economic recovery next year. Still, the Latin American nation’s net general government debt could increase approximately 10 percentage points to 66% of GDP this year due to deterioration of the country’s public finances prompting higher spending and revenue shortfalls. On April 6, 2020, S&P Global Ratings affirmed its ‘BB-’ credit rating on Brazil and revised the outlook from positive to stable, due to the pandemic’s adverse effects on the country’s GDP growth and fiscal performance this year alongside slower-than-anticipated progress on its economic reform agenda. S&P Global Ratings also revised the outlooks from positive to stable on 15 financial institutions in Brazil, following the same action on the sovereign.
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Source: Platts
