Although Brazil’s economy outperformed all other major Latin America markets in 2020, it still faced a historically deep recession, falling by -4.7% in 2020, and will not fully recover until 2022. Narrowing fiscal stimulus will intensify major labor market pressures and structural economic damage inflicted during the pandemic, weighing on the pace of recovery.

For sustained recovery, Brazil’s public sector will need to retrench and motivate the private sector to fill the void. Investment intentions will not rapidly rebound, however, amid slow reform progression, lingering COVID-19 and fiscal risks, and lower investment capacities in hard-hit industries. Nonetheless, growth opportunities will surface as multi-paced recoveries unfold, which will demand strong customer segmentation and potential recalibration of value propositions to ensure profitable growth.

Brazil will be the first major LATAM market to return to pre-COVID-19 levels of economic activity. Brazil’s aggressive fiscal stimulus package and less restrictive social distancing measures have allowed it to outperform among major LATAM markets. Although key recovery risks and COVID-19 uncertainty remain elevated, we expect Brazil to be the first market to return to pre-pandemic levels of economic activity. This outlook could improve firms’ ability to make the case for corporate resources and shift focus to growth opportunities in 2021.

Reform progression and fiscal consolidation initiatives are key signposts for Brazil’s recovery. For Brazil’s recovery to be sustainable, the public sector will have to retrench and encourage the private sector to fill its void. However, amid persisting fiscal risks, COVID-19 uncertainty, and slow reform progression, this transition will take time. The most critical component for Brazil’s outlook beyond COVID-19 dynamics will be the government’s ability to promote credible fiscal plans and push some degree of structural reforms in 2021.

Firms should expect a multi-paced recovery in Brazil. Firms will need to ensure strong customer segmentation in the near term, as there will be key differences in the pace of recovery across industries and regions. While some more resilient customers will continue to outperform, others that were relying on bold fiscal stimulus to sustain demand could face headwinds. Meanwhile, the most harshly impacted industries, such as service, still have a long recovery ahead.

  • Ensure that you have a strong degree of alignment with corporate on the recovery and opportunities in Brazil, but also the key downside risks that could materialize and create challenges for meeting potentially more aggressive growth targets in 2021.
  • By and large, prioritize industries that are less reliant on narrowing fiscal stimulus to sustain demand (e.g., agribusiness and tech), which will outperform those where demand is currently buoyed by stimulus (e.g., retail segments, manufacturing) or where the COVID-19 impact has been more detrimental (e.g., services).
  • Consider ways to build greater responsiveness into your supply chain to ensure that you can minimize inventory risk amid volatile demand.
  • Evaluate how your sales processes might evolve following the pandemic and whether they will continue to depend less on physical interaction. Consider whether further digital transformation initiatives should be prioritized.

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