Data indicate that worst of the crisis is behind, but uncertainty remains high

Economic indicators for May and June indicate a reaction from the Brazilian economy and signal that the worst of the crisis may have fallen behind, despite still high uncertainties about the pace of recovery and the advance of the coronavirus pandemic in the country. Data from the Internal Revenue Service issuing invoices indicate a resumption as early as June. Figures anticipated on Sunday by the newspaper "O Estado de S.Paulo" and officially released on Monday (6) show that last month had the highest level in invoice issues of the year, reaching R$ 23.9 billion in sales per day, which is a 10% growth compared to June 2019.
The thermometer mainly captures sales between medium and large companies, as well as non-face-to-face sales of companies to individuals. Compared to the previous month, the drop in April sales was followed by increases of 9.1% in May and 15.6% in June. Also according to the Revenue, all regions of the country showed recovery in the pace of sales in June.
The result of industrial production in May, released last week by IBGE, also surprised positively, showing a growth of 7% compared to April. The advance was insufficient to reverse the 26.3% loss accumulated in March and April, but brought relief that the sector has stopped falling. Service and trade data will be released this week.
"I do believe that the worst of the crisis was left behind and that April was, in fact, rock bottom. The antecedent indicators of economic activity have been positively surprising," says economist Luana Miranda, a researcher at Ibre/FGV. "Our last official projection for GDP is down 9.8% in the second quarter compared to the previous quarter, and 6.4% for the year. However, the antecedent indicators of May and June bring a slightly positive bias in the scenario, to be confirmed after the release of the May trade and services surveys."
Sergio Vale, chief economist at MB Associados, also estimates that the recovery may happen faster than initially thought. "It looks like there is a better recovery underway than expected, with April having been rock bottom and the numbers improving rapidly after that. This faster recovery should cause GDP to fall less than previously thought," he says.
Financial market economists slightly improved estimates for gross domestic product (GDP) for 2020. The projection went from a 6.54% to 6.50% decrease, according to the Focus bulletin released on Monday. Ibre and MB Associados project a 6.4% drop in the year.
Despite the assessment that Brazil has already entered a new recession and is expected to record a sharp downturn in 2020, banks such as Itaú and Fator also consider that the economy has already recovered. "Data indicate that economic activity hit the floor in April. Indicators such as the consumption of industrial electricity, the capacity utilization of the manufacturing and construction industry, the resumption of production of some vehicle manufacturers, as well as our daily indicator of activity, show improvement in May and June," Itaú said in a note released to the market.
The bank maintains a less pessimistic projection than the market average for gdp in 2020 and estimates a 4.5% decline in the year.
Economists warn, however, of the still high level of economic and political uncertainty in the country, and estimate that the recovery from pandemic losses should take place gradually, at a pace probably slower than that of other economies.
According to Paulo Gala, director general of Fator Administração de Recursos and professor at fundação Getulio Vargas (FGV), he estimates that the recovery of the Brazilian economy tends to be at a weaker pace than that observed in the United States, United Kingdom or Europe.
"Brazil was already in a very fragile situation, with several companies on the verge of bankruptcy, a lot of debt, unemployment still very high and very bad growth prospects. The Covid was a kind of water drop for the widespread breaker and there is no signaling the government to take stimulus measures in the future. Most likely we will be among the worst recoveries in the world," he says.
The still very low level of activity, which had not yet recovered from the losses of the 2014-2016 recession, is also pointed out as an additional challenge for a stronger recovery.
"The still very high level of uncertainty should contain the growth in consumption and investment, making it impossible to make a possible 'V' resumption. The initial recovery should be a little stronger, but then it should continue at a slower pace until it resumes at the pre-crisis level," miranda says.
Analysts also draw attention to other risks such as uncertainty about the evolution of public debt and the worsening of the labor market. "Many people have gone to informality and will have difficulty being reemployed. This mass of lost income will have increasing impacts on the economy. So there are reasons to celebrate a smaller impact in the short term, but the long-term effects especially in the labor market need to be seen carefully," Vale said.
He also warns of the risks of pandemic progress in Brazil and the possible need to return to confinement. "Care must be taken with the coming months. First, because Covid-19 should stay with us longer than it did in Europe. Second, because contamination has increased in other regions and this tends to have negative repercussions on the economy, with specific quarantines still happening,' he adds.
Economist Silvio Campos, of Tendências, also points out that the country will emerge from this crisis greatly affected in public accounts. "Before the pandemic there was a trend of accommodation of the debt-to-GDP ratio just below 80% of GDP, but the legacy of the epidemic will be a debt-to-GDP ratio above 90% and with a chance of approaching 100%. This is of great concern, especially in the face of the difficulties of moving forward with new adjustment measures in Congress amid the turbulent political framework."