INSIGHT: Trucker strike would hit Brazil when GDP is already slowing

HOUSTON (ICIS)–A trucker strike that could take place on Monday would hit Brazil when the nation’s economy is already struggling with higher inflation and slower GDP growth.

The magnitude of any strike is unclear. On 18 October, three unions threatened to strike if the federal government did not meet their demands to address rising fuel prices, according to the United Centre of Workers (CUT), one of Brazil’s main labour organisations.

Those unions are the National Confederation of Workers in Transportation and Logistics (CNTTL), the National Council for the Highway Transport of Cargos (CNTRC) and the Brazilian Association of Motor Vehicle Drivers (Abrava).

A fourth group, the National Confederation of Transportation (CNT), said on Tuesday that it does not support any type of strike. Its drivers will not stop and there will be no shortages.

The other unions could reach a last-minute deal with the government that would avert a strike.

Any deal would need to address the truckers’ exposure to rising fuel prices, which shows no signs of slowing down.

BRAZIL’S RELIANCE ON TRUCKS
Brazil’s economy is vulnerable to such strikes because its rail system is small, making it heavily dependent on trucks to deliver goods. The credit-rating agency Fitch Ratings had estimated that Brazil relies on roads to distribute more than 70% of the goods produced in the country.

A nationwide trucker strike in 2018 illustrated the heavy reliance on road transportation by the economy and the chemical industry.

For chemical companies, the 2018 strike disrupted operations, because plants could not receive raw materials or ship out finished products.

For the economy, the strike was so damaging, the International Monetary Fund (IMF) lowered the country’s GDP forecast.

It is unclear whether this strike would approach the scale of the one in 2018. Earlier strikes and protests by truckers passed this year with little effect beyond inconveniencing drivers.

One, which took place at the end of July, was conducted to protest against rising fuel prices. It was called for by the CNTRC. It did not attract much participation and passed without much disruption.

Another protest in mid-September was reportedly a show of support for the nation’s president, Jair Bolsonaro. This was conducted independently from the country’s unions, which denounced the action.

FUEL PRICES
Rising diesel prices lay behind the unions’ call for a strike.

Although Brazil exports oil, it imports fuel, leaving it exposed to global prices.

That exposure is especially challenging for Petrobras because the government owns a controlling stake in the company. When prices rise, the government can give in to voter pressure and interfere in fuel markets.

Previous administrations had restricted Petrobras’s ability to raise fuel prices to offset higher costs for imported fuel. The policy was a drain on the company’s earnings.

The current administration requested that Petrobras replace its CEO after Bolsonaro complained about high fuel prices.

Despite that earlier pressure from the government, Petrobras has been raising fuel prices. On Monday it announced it would increase its diesel prices to fuel distributors to reais (R)3.34/litre from R3.06/litre.

At the start of 2021, those diesel prices were R2.24/litre.

WEAKENING ECONOMY
If the strike takes place on Monday, it could worsen an already deteriorating economic outlook.

The central bank has been raising the country’s benchmark Selic interest rate to fight inflation. On Wednesday, it increased rates by 1.50 points to 7.75%, and the central bank said it will raise it by another 1.50 points at its next meeting in December.

The bank has acknowledged that it is pursuing a restrictive monetary policy, which should limit economic growth.

Economic forecasters have taken note. They expect GDP to grow by 1.40% in 2022, according to the latest weekly survey conducted by the central bank. Earlier, they expected GDP to grow by 2.50% in 2022.

Despite the string of rate increases, inflation is still running at 10.25%, well above 3.75%, the midpoint of the central bank’s target of 2.25-5.25%.

In 2022, inflation will still run above that midpoint, at 4.40%, according to the central bank survey.

Meanwhile, there is growing concern that the Bolsonaro administration will pierce the government’s spending ceiling so it can increase expenditures, according to the business publication Valor Economico.

The prospect of more government spending could weaken exchange rates and increase inflation. A trucker strike would make things worse.

Insight by Al Greenwood