Economic Fallout From Coronavirus Begins Across Developing World
Brazil’s economy shrank during the first three months of this year. Turkey’s economy slowed, and India’s yearly output posted its slowest growth in 11 years.
Economic results released on Friday in all three countries highlight the struggles of many developing-world economies even before the coronavirus pandemic caused governments to order lockdowns in late March that have since cost hundreds of millions their jobs.
Economic output in Brazil, Latin America’s biggest country, shrank 1.5% in the first quarter compared with the last three months of 2019, the Brazilian Institute of Geography and Statistics said Friday. It fell 0.3% compared with the first quarter of 2019.
In India, the economy mustered 3.1% growth from January to March compared with the year-ago period. For its fiscal year ended March 31, the economy grew at its weakest rate in 11 years, 4.2%.
Turkey’s output rose 0.6% compared with the last quarter of 2019, and 4.5% compared with the same period of last year, according to data released by the national statistics agency on Friday.
But growth in India and Turkey during the first months of this year shouldn’t be mistaken for resilience in the face of the pandemic, economists said. Since lockdown measures only came in the last week of March, the impact of the pandemic won’t turn up until the second quarter figures are released.
“This will get a lot worse,” said Monica de Bolle, an economist at the Peterson Institute for International Economics in Washington, D.C. Turkey’s economy held up better than Brazil because the Turkish government moved more quickly to inject money into the economy, she said.
Economic output in all three countries is expected to decline this year, reversing a historic run in economic growth across much of the developing world. Both India and Brazil, the world’s fifth and ninth largest economies, will likely have their worst economic performance on record.
For the first time ever, all the world’s economies are going through a completely synchronized contraction, says Dilip Ratha, lead economist at the World Bank’s migration and remittances unit.
“The crisis propagated rapidly, coming from lockdowns all over the world, cities big and small, factories, agricultural farms. The extent of the crisis is unprecedented,” he said.
Ratings agency Crisil said Tuesday that even though New Delhi had begun easing restrictions in areas less affected by the pandemic, the economy would likely contract 5% this year, its worst performance since independence in 1947. Brazil’s economy is also expected to shrink by more than 5% for the year, according to Barclay’s brokerage.
“Even after the lockdown gets lifted, there will be no business. It will never be the same,” said Umesh Agarwal, a 50-year-old potato trader in Azadpur Mandi, Asia’s biggest wholesale vegetables and fruits market, in New Delhi. He said business was down 70%. Many workers have returned to their villages, and there is no one to unload trucks.
Other big emerging markets will get hit even worse. Mexico’s economic output during the first quarter declined 1.2% from the last three months of 2019, and 1.4% compared with the year-ago period, according to data released earlier this week. The full-year decline is expected to be a historic 9%, according to Mexican brokerage Citibanamex.
For a country like India, economic indicators are pointing to lasting damage to the economy. India’s unemployment has surged to more than 25% as a result of the shutdown of the economy, according to the Center for Monitoring Indian Economy, a private data provider.
An estimated half a million young Indians enter the workforce every month, meaning no new jobs can send unemployment skyrocketing and create political instability.
Data firm IHS Markit’s purchasing managers index for India’s services sector collapsed to 5.4 in April from 49.3 in March, the largest single-month drop in that measure of activity for any country at any time since it started collecting data in 2005. A reading below 50.0 points to a contraction. India’s numbers are equivalent to a 15% contraction of gross domestic product during that month.
Brazil, a country of 210 million, faces an economic crisis, a health-care emergency and political turmoil. The country is now logging more than 1,000 daily deaths from the pandemic, and on Thursday reported more than 26,000 new cases, a record.
The spread of the pandemic comes as the country eases restrictions aimed at getting businesses back to work. In São Paulo, Brazil’s most populous state and home to much of the country’s financial and manufacturing sectors, Gov. Joao Doria said earlier this week that some businesses and activities could resume starting Monday.
“They’re unleashing the economy while the pandemic is getting worse, so it looks like we’ll return to quarantines again later this year,” said André Perfeito, chief economist at the Necton brokerage in São Paulo. “Investment is going to collapse, and consumer spending will be bad again.”
Geraldo José de Siqueira, 61, has cut his staff at his small optician shop in a São Paulo market to two after sales fell 90% in the past two months. He has managed to stay open by negotiating a lower rent and putting off some payments to suppliers. But without further government help to keep his struggling business open, he says, “Pretty soon, I’ll be just another guy looking for a job.”
In Turkey, the economy could contract by as much as 11.6% in the second quarter, compared with the first quarter, according to Maya Senussi, an economist with the Oxford Economics forecast agency.
While the economy still grew during the first quarter on the back of government spending, the country faces a steep contraction in tourism, as well as exports to the European Union, its main market.
To prop up business activity and consumption, Turkey’s central bank, which slashed its benchmark interest rate to 8.25% from 24% less than a year ago, is widely expected to keep easing money supply.
Economists fear that will adversely affect the Turkish lira, which hit an all-time low against the dollar earlier this month, and leave the country facing heightened risk of a full-blown balance-of-payment crisis.
Data published by the central bank showed that it tapped heavily into foreign-exchange reserves in recent months, selling billions of dollars to stem the lira’s fall.
“The fact that the Turkish government is spending so much money to keep the economy afloat is not unique, every government in the world is spending a lot,” said Cristian Maggio, head of emerging-markets strategy at financial-research firm TD Securities. “What makes Turkey uniquely bad, however, is the fact that they have been spending a lot of firepower in keeping the lira stable. The lira is the real weak link.”
Mr. Maggio predicts Turkey’s economy will contract by 3% for the year.
Source: Dow Jones