The new projections of the world pandemic state as a result of the new coronavirus create a scenario of uncertainty for the world economy and health. In order to contain the damage caused by the virus, countries around the world have initiated a blockade called a lockdown, an English term that represents a quarantine state, which restricts the traffic of people, prohibits travel and opening of stores and maintains only activities essential.
In Brazil, the effects of covid-19 are already beginning to be felt by the population. Much of the country is undergoing quarantine, as indicated by the World Health Organization (WHO). And what are the possible impacts on the economy of our country caused by restrictions imposed on people's lives?
Almost a post-war
Economist and professor at the Federal University of Rio Grande do Sul (UFRGS) André Moreira Cunha describes the crisis as a post-war scenario. “The crisis is profound and generates a disorganizing impact, as well as the virus, which is characterized by a low mortality rate and a high rate of contagion”, explains Cunha to TecMundo.
Cunha still presents that "we do not yet have the dimension of this impact, only projections, but they all indicate the effect equivalent to that of a war, and what calls attention is the speed of that impact".
Last Monday (30), in a press conference, the director general of the organization Tedros Adhanom Ghebreyesus again emphasized the importance of physical isolation as the main and only measure that the world population has to defeat the virus.
According to the Inflation Report March 2020, the world and Brazilian economy suffer a high degree of uncertainty due to the new coronavirus pandemic. The report indicates that the epidemic causes a significant slowdown in economic activity, as well as a decrease in commodity prices and a considerable increase in volatility in the prices of financial assets.
The Central Bank highlights that, despite the monetary stimulus from the main economies, the current context has created a challenging scenario with great risks; as a consequence, there is a reallocation of assets, which causes a substantial tightening of financial conditions.
Economist and professor at the Federal University of Rio Grande do Sul (UFRGS) Fabian Scholze Domingues explains that the economy is divided into two major forces: supply and demand. The pandemic of the new coronavirus and the paralysis (or marked reduction in economic activity), due to the health crisis, are already showing damage in both: in supply, due to the impossibility of several workers and companies to produce; and in demand, due to the significant decrease in consumption generated by the mobility restrictions imposed by health authorities.
Domingues also points out that demand and supply can be separated into national and international and that Brazil is one of the major suppliers of primary goods in the world market. Recently, China, one of the largest Brazilian customers, reduced demand, reducing purchases of primary goods from Brazil and the Middle East. The consequences of this are reflected in several aspects, but can be seen primarily in the reduction of commodities.
"One of the consequences of this reduction in world demand for commodities is the fall in prices"
“One of the consequences of this reduction in world demand for commodities is the drop in prices – a fact already observed in the oil markets -, but it will also impact the demand for other primary products, such as iron, aluminum, soy, meat, cotton, among other markets in which Brazil used to earn a lot of money ”, says Domingues.
The effect of this for the economy, according to Domingues, is that Brazil will suffer a decrease in prices and quantities of its primary products. The condition of production will also be affected, and there will be an increase in the prices of products produced on the national territory, due to the mobility restrictions of workers and companies.
Another sector affected is that of imports, which will have several losses due to the covid-19. “In the end, the adjustment between prices and quantities, between claimants and suppliers, will cause primary products, main items on the Brazilian export basket, to be produced at higher prices and at smaller quantities, so that Brazil will have huge losses in what, until then, it was the flagship and dynamic sector of the Brazilian economy: exports ”, evidences Domingues.
"The effects are still uncertain, but it is likely that the Brazilian currency will continue to devalue, resulting in higher prices for imported products"
The economist also points out that all macroeconomic variables will be affected by the crisis – exchange rate, inflation and growth are some. “The effects are still uncertain, but it is likely that the Brazilian currency will continue to devalue, resulting in higher prices for imported products. Price hikes are also expected; that is, inflationary pressures, in the first instance, of free prices, and, in a second moment, of administered prices, since most contracts provide for an exchange adjustment clause ”, explains Domingues.
The growth rate is one of the variables that most depend on the circulation of people and goods, so it will be one of the most penalized – in addition to the slowdown in the growth of the Brazilian economy as a whole, which will impact hunger rates in the country.
“We can already anticipate the reduction in economic activity and, therefore, expect a decrease, for negative rates, in the growth of the Brazilian economy, which was no longer doing well. The general and most observable impact will be the general impoverishment of the population, due to the global decrease in production and consumption capacity. Specifically in Brazil, we will have serious problems of food and nutritional security, with a drastic increase in hunger ”, warns Domingues.
Who are most affected in the crisis?
Economist and professor at the Federal University of Rio Grande do Sul (UFRGS) Maurício Andrade Weiss points out the sectors that will be most affected by the crisis at first and in the long term. “What we are experiencing now is an economic crisis, although the reason is a pandemic. Usually, major economic crises have repercussions on the financial market and, as the market itself tries to anticipate movements, when something happens, the first to feel more abruptly is the financial one ”, he says.
The economist points out that the financial and services sectors already had effects early on. “The financial sector responded very quickly to this crisis in negative terms. In Brazil, the stock exchange was around 120 thousand points and plummeted to -70. When people choose to stay more at home, the service sector is first to feel, especially non-essentials, like commerce. As for a supermarket and a pharmacy, which are part of essential services, at first it is favorable, for example, ”explains Weiss.
In the course of the crisis, other sectors are affected, such as hotels and airlines – a scenario that was perceived in the first moment due to the spread of the virus, according to the economist. He adds that other companies that will suffer will be the large industries, and the only ones that will not feel such an impact are linked to combating the covid-19.
Economist Fabian Scholze Domingues confirms that several sectors will be affected and that the unemployment rate will rise in the short term in Brazil.
"Some analysts speak of 40 million unemployed"
“It is still early to make a more accurate assessment, but the fact is that the unemployment rate will increase a lot in the short term (up to 1 year) – some analysts speak of 40 million unemployed -, penalizing mainly the lower classes, as self-employed workers, day laborers, service providers, small traders and producers of non-essential goods. Certain sectors of the middle classes, in particular, professionals, will also suffer a lot from the impacts of the health crisis in the short and medium terms ”, adds Domingues.
Weiss also points out that the first people affected are the self-employed, who work on their own and without a formal contract. “A normal crisis already creates problems for this self-employed worker, as it reduces the number of people ordering their products / services; in the current crisis, however, even those who have the income to hire a service end up hiring, for fear of being contaminated. ”
"The problem is that, in Brazil, the percentage of informal work has grown a lot. Almost 50% of workers are informal"
In addition, the economist describes that the people most strongly impacted are those who perform services that require physical work, such as recyclable waste pickers, who already live on a low income. “The problem is that, in Brazil, the percentage of informal work has grown a lot. We currently have a record of informal employment. Almost 50% of workers are informal. Last year, there was even a drop in unemployment, but it was basically via informal work ”, adds Weiss.
According to the Brazilian Institute of Geography and Statistics (IBGE), in Brazil the rate of informal work reached a record level of 41.3% of the employed population in 2019.
(Source: IBGE / Reproduction)
Another type of worker that will be strongly impacted is intermittent, a category created after labor reform. “He has a formal contract, he is not self-employed, but it would be the second most affected category. Not to mention those who are already on the poverty line, without any kind of income ”, claims Weiss.
In the sequence shown by the economist are micro-companies, which have a …