Brazil consumers stabilizing from COVID-19 hit - Moody's
July 9, 2020 |
Record low interest rates unlikely to help consumers
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Brazil's consumers, hit hard by the COVID-19 pandemic, are starting to show signs of stability after the economy took a thrashing from the shutdowns locally and drop in markets globally," Moody's Investors Service said in a report issued on Wednesday
"Consumer confidence is low, unsurprisingly, reflecting uncertainty regarding the fallout of the pandemic. Nearly six million formal jobs have been lost, unemployment is rising, and aggregate wages have declined by 15% year-to-date. However, high-frequency data indicate that the lowest point may be behind us and that activity is slowly returning to normal," Moody's said.
The pandemic is delaying Brazil's economic recovery from recent gains following the 2015 recession have been reversed by the health crisis, the report said. Moody's points out that consumer confidence has dropped to levels not seen in nearly two decades.
"While consumption was slowing in other economies even before the outbreak began, Brazilian consumers were contributing to its economic recovery until the pandemic hit," Moody's said.
Brazil's central bank, in a bid to spur borrowing and investment, cut the benchmark Selic interest rate to a record low 2.25% on June 17.
"Consumers are unlikely to benefit from record-low interest rates as banks do not pass through the substantial decline in the Selic rate. Consequently, increases in durable goods consumption are unlikely to be supported by bank lending increases," Moody's said, noting that banks are not passing along the lower rates to households.
The report goes on to say that the dynamics of the pandemic within Brazil are shifting in favor of cities where the initial outbreaks were largest. Now the number of new cases and deaths are stabilizing in those locations while new cases are surging in smaller cities, although deaths have plateaued. Moody's said the expectation is for larger cities to continue gradually reopening.
At the same time, President Jair Boslonaro tested positive for the coronavirus but has said he is doing well, according to Wednesday press report. He has dismissed the virus as "a little flu" and until recently was not wearing a face mask. On Wednesday he vetoed provisions of a law that obligated the federal government to provide drinking water, disinfectants and a guarantee of hospital beds to indigenous communities, according to a report from Reuters.
Moody's said domestic demand is likely going to help underpin the economy because of "income recovery programs implemented to mitigate the impact of the pandemic."