Brazil Trucker Strike: Implications for MNCs

On May 30th, Brazil’s truckers entered the 10th day of a general strike that has paralyzed the local economy. The strike itself was driven by three overall demands from the transportation sector: a request to reduce taxes on gasoline and diesel, a request to revert the use of market prices for gasoline and diesel by the state-run oil company Petrobras, and the reduction of road tolls.

In response, and following prolonged dialogue with representatives from the transportation industry, the government published several measures that effectively reduced gasoline/diesel prices while also lowering other costs for the transportation sector. The result was the official declaration of the end of the strike by the leaders of the trucking associations on Monday (May 28th).

While some strikers, that seek alternative political ends, have continued to block roads in strategic places in the days following the agreement, FSG believes that the trucker strike will be brought to a complete close within the following days, and business as normal will be seen by early next week (week of June 4th).

Economic impacts

FSG is still examining the impact on the economy in Q2 2018. However, our preliminary estimate is for a revision for full-year 2018 growth from 2.8% YOY to 2.5% YOY. While some of the negative impacts will be washed out by higher consumption in June (such as lower purchases of consumer durable goods), impacts in areas such as the service and export sectors are largely unable to be recuperated. Furthermore, business and consumer sentiment are likely to be weakened in upcoming readings due to the heightened political uncertainty generated by the event. Some of the immediate known impacts are summarized below:

  • Inflation will rise in May as the failure of deliveries of key consumer goods such as gasoline, food goods, and medical inputs have pushed up prices for the end consumer in the short-term
  • The restaurant and hospitality sectors, in addition to super markets and other food vendors were unable to obtain produce to continue with normal services, thus significantly impacting their revenues in the short-term
  • The agriculture sector was significantly impacted due to ruined goods
    • The milk industry estimates losses of US$350 million
    • The meat packing industry estimates losses of nearly US$300 million
  • Production lines for various industries were stopped as workers were unable to find transport and basic inputs failed to arrive at plants
    • The auto industry had mostly shut down by May 25th
    • Some parts of the large pharmaceutical industry stopped output
  • Many airports throughout the country stopped functioning as they were left without gasoline

Key signposts to watch

  • Impact of new gasoline/diesel pricing policy on Petrobras share prices
  • Impact of new gasoline/diesel taxes on public sector deficit and spending through remainder of 2018
  • Presidential election polling results
  • Oil worker strike set to last for 72 hours beginning on May 30th (note: this strike is not expected to impact output)
  • Potential additional sector specific strikes over the coming weeks

Actions to take

FSG still expects overall growth acceleration in both 2018 and 2019 (following the presidential elections), and our GDP forecasts under all scenarios remain positive. However, high volatility both in terms of demand and the exchange rate should be expected through at least Q3 2018. On that note, multinationals operating in Brazil should continue to review their scenario and contingency plans for the market on a monthly frequency through the second-round election at the end of October.

For our latest updates and insights, FSG clients can visit the client portal or contact their Client Services Director for more in-depth briefings. Not a client? Please contact us to learn more.

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