Coronavirus pandemic tightens its hold on Brazil and Mexico economies

Brazil’s economy is forecast to contract by more than 6% this year with business insolvencies up by 20%, reveals leading trade credit insurer Atradius in its updated country reports.

Two new country reports published by Atradius review the economies of Brazil and Mexico, assessing the impact of the global coronavirus pandemic on key indicators such as growth, private consumption, investment and export rates. They also include Atradius’ performance outlook on key industries. Both reports are available now for free download from the Atradius website

Atradius’ Brazil County Report details how the current economic decline has put an end to the modest economic rebound Brazil has experienced since 2017 following its longest and deepest recession, which saw GDP shrink by almost 9%. With a contraction of 6.2% forecast in 2020, Brazil’s vulunerability stems from its relatively high dependence on the service sector and commodity exports alongside its high public debt.

The spread of the coronavirus in Brazil and subsequent lockdown measures have had a severe impact on domestic demand; private consumption is subsequently forecast to contract by 8.6% and investment by 10% in 2020. With a sharp drop in international demand, especially from China, the US and Argentina, Brazil’s exports are forecast to shrink by more than 4% this year.

Atradius’ analysis of key industries reveals the ongoing recession is having a major impact on the business performance and credit risk of almost all sectors in Brazil. Hit by widespread lockdowns and rising unemployment, the automotive, consumer durables, electronics and textiles sectors have a ‘bleak’ outlook. While the paper sector and the services sector (comprising mainly hotels, catering, restaurants, bars, entertainment and tourism businesses) both face a ‘poor’ outlook. Deteriorating demand from the oil and gas and the construction sectors have had a knock-on effect on demand for machines, metals and steel industries; all also rated with a ‘bleak’ outlook. More positively, the chemicals/pharma, financial services and food sectors have a ‘good’ outlook while the picture for agriculture is considered ‘fair’.

Atradius’ Mexico Country Report reveals economic performance is expected to deteriorate steeply this year. However, Atradius warns that the level and intensity of Mexico’s recession is still to be seen as the pandemic and the risk of further comprehensive lockdown continues. Currently, Atradius forecasts a 7.2% contraction in Mexico’s GDP in 2020 followed by a 4% rebound in 2021. Private consumption and investment are both forecast to decrease 7.6% and 14.8% respectively. Mexico’s exports are forecast to contract by more than 9% this year following a sharp fall in external demand and severe supply-chain disruptions, particularly within the automotive sector.

Reviewing key industries, the construction, machines/engineering, metals and steel sectors in Mexico all have a ‘bleak’ performance outlook while the agriculture, automotive/transport, consumer durables, electronics/ICT, oil/gas, paper, services and textiles industries have a ‘poor’ outlook. Meanwhile, the chemicals/pharma, financial services and food sectors all have a ‘fair’ rating.

Richard Reynolds, Head of Strategic Accounts for Atradius UK, said: “As the coronavirus pandemic has spread across the globe, so has its contagion of global economies which have faced unprecedented challenges. However, while the global landscape has been rocked, there is a clear need to support a return to growth through international trade. Timely, accurate and expert insights on global markets and sectors will be fundamental to businesses as they seek to return to growth and stay ahead of the ever-changing risk environment. Businesses must be agile in response and ensure that, wherever they’re trading, the right risk management strategies, protocols and support are in place to help them navigate through these uncertain times.”