Brazil leads economic recovery in Latin America

RIO DE JANEIRO, BRAZIL – Brazil is leading the economic recovery in Latin America. In the week ending August 13, the country was the only one in the region that did not register a decline in mobility and maintained the ongoing recovery in economic activity.

According to the Oxford Economics Consulting Tracker, the indicator in Brazil rose 0.9 percentage points above pre-pandemic levels, which can be attributed to the resumption of classes in many schools.

To develop the indicator, Oxford Economics compiles mobility data from the Google Mobility Report, rates of new illnesses and deaths from Covid-19 collected by Johns Hopkins University, and online searches for terms such as “restaurant” and “hotel” from Google Trends – variables that also seek to capture levels of offline activity in places where social interaction is recovering.

“In Brazil, things have improved: restrictions are generally loosening, many local governments are making it easier to go to school and are allowing more people into restaurants. People seem to be less worried and are going out more,” says Joan Domene, an economist at Oxford Economics, warning that increased mobility also increases the risk of spreading coronavirus.

“The risks of a new wave of Covid-19 are there. The problem is that the region can’t shut down the economy forever because it can’t afford those economic costs,” he says.

Overall, Latin America fell 0.5 points last week. Peru saw the largest drop of 3.5 points due to the extension of the state of emergency until March 2022.

In Colombia, the drop was 2.4 points, and authorities are considering restricting access to unvaccinated people. Colombia joined Brazil as the only country in the region to return to pre-pandemic levels.

In Chile, the indicator decreased by 0.4 points, and in Argentina, it remained practically unchanged with a slight increase of 0.1 points. In Mexico, the decline was 1.6 points due to worsening sanitary conditions. The country is experiencing the worst phase of the pandemic, with a record number of new cases per day due to the spread of the delta variant. However, the Mexican government has ruled out closing the economy.

The scenario outlined by the indicator is supported by official data on the level of economic activity in the countries. The Central Bank’s Economic Activity Index (IBC-Br) recorded a 1.1% increase in economic activity in June. Economists believe that economic activity will continue to increase in the coming months as vaccination progresses.

Across the region, however, the recovery remains subject to political, pandemic, and inflationary risks, says Alberto Ramos, an economist at Goldman Sachs bank.

“Political noise has increased in Chile, Peru, and Colombia. In Brazil, there is friction between powers. In a region where growth and productivity are low, uncertainty is quite high because of political risk,” he says. “Another risk is the acceleration of inflation, the withdrawal of incentives, and the increase in interest rates. That could put the recovery at risk as much or even more than the Covid itself.”