The Lens is a weekly newsletter published by DuckerFrontier’s Global Economics and Scenarios team to highlight developments and trends that will have the highest impact on business scenarios. Our teams of analysts are conducting research into the potential impacts of the novel coronavirus (COVID-19) on the global economy and business environment. Subscribe today to receive the latest insights on COVID-19 business impacts in your inbox every Thursday.
Read this week’s edition of The Lens below as you prepare your business for coming changes.
The exit of Bolsonaro’s most popular minister Sérgio Moro inevitably introduces a new element of uncertainty and downside risk to Brazil’s already-bleak economic outlook in 2020. However, an impeachment is far from being a foregone conclusion. The potential for such an event will depend on how much of Bolsonaro’s traditional support is eroded by Moro’s departure and the current economic and health crises. It will also depend on the conclusion of the investigation and Bolsonaro’s ability to engage in pork barrel politics to secure enough congressional support to block any impeachment procedures in the House. Although major uncertainty on these fronts remain, we currently see an impeachment during the pandemic as unlikely. Still, the risk remains, and the political turmoil will deepen the economic crisis. We also see a near-term departure of economy minister Paulo Guedes as improbable, considering that it would trigger an even sharper sell-off, which should prompt the Bolsonaro administration to reemphasize the minister’s prominence in economic matters.
Firms will need to brace for a period of heightened political uncertainty, making scenario planning and market monitoring a priority. Businesses should closely track President Bolsonaro’s popularity in the coming weeks to gauge whether his base has been meaningfully eroded by the crisis—a key signpost for the impeachment movement to pick up steam as well as an indicator of the eventual outcomes of current investigations. Whether Guedes’ economic autonomy is strengthened should also be closely monitored, as this will signal whether the minister is likely to remain. Finally, firms should prepare for a period of ongoing FX volatility and real weakness as the political noise will exacerbate major pressures from the COVID-19 pandemic.
Ramiro Sugranes, Senior Analyst for Latin America Research
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Nigeria’s economy is forecast to shrink by 3.3% YOY in 2020. The government’s capacity to stimulate the economy will be limited given the sudden loss in oil revenues and its narrow non-oil tax base. Public spending priorities will focus on healthcare while investment projects—notably infrastructure—will be put on hold.
Land border closures will cause bottlenecks at the congested Apapa port, resulting in additional delays importing products. Lockdowns in Abuja, Lagos, and the industrial hub of Ogun State will severely hamper business activity, resulting in weaker demand across customer segments. The CBN’s attempts to maintain the naira’s new peg to the dollar will cause forex shortages to worsen. This will ultimately trigger another devaluation of the naira later in 2020, resulting in higher inflation that will cause planning headaches for firms and expose local partners to forex losses. Firms should consider offering flexible payment terms or business development support to local partners facing slower sales amid worsening dollar availability and rising logistics costs.
Matthew Kindinger, Senior Analyst for Sub-Saharan Africa
FrontierView clients: See our recent COVID-19 in SSA: Outlook Revisions for further insights
Mexico will suffer structural damage, followed by a U-shape recovery, because of the devastating effects of the pandemic and the lack of effective economic response by AMLO’s government. Firms should not expect a robust fiscal stimulus plan as the government remains fixed on not issuing debt to mitigate the blow companies are suffering amid a difficult environment.
The operating environment will remain challenging throughout 2020; thus, firms should adopt a holistic approach to scenario planning that considers extremely unlikely events on the domestic and international fronts.
Alejandro Valerio, Senior Analyst for Latin America
The government’s unwillingness to dip further into its vast reserves and give greater direct support to the economy underlies our revisions downward for consumer spending and investment, particularly in the context of a very gradual recovery in Q3 that is behind the forecasted performance of most European economies. Assuming that prolonged low oil prices discourages any further state support to businesses in May, bankruptcies, high unemployment and weak wages will extend for months beyond the end of the lockdowns (expected by early June).
Demand is unlikely to recover notably until Q4, and a general revival of demand back to the pre-crisis period is unlikely until mid-2021. While B2B demand will recover more slowly, only after the global economy normalizes and consumer spending revives, export-oriented industries will improve ahead of the rest of the economy, providing some earlier opportunities. B2C firms should adjust their portfolios in light of the shrinking middle class and declining demand the rest of this year.
Mark McNamee, Practice Leader for Europe