Brazil GDP fell 4.1% in 2020, less than forecast but worst in decades

RIO DE JANEIRO, BRAZIL – Brazil’s economy shrank last year by 4.1% amid the pandemic, data showed on Wednesday, March 3rd, the worst drop in decades, but not as much as originally expected due to cash transfers to the poor.

Latin America’s largest economy grew by 3.2% in the fourth quarter, according to official statistics agency IBGE, more than the 2.8% median estimate in a Reuters poll of economists.

Still, a second wave of COVID-19 has killed Brazilians in record numbers in recent weeks, clouding the economic outlook and adding to fears of a renewed downturn early this year.

The full-year 2020 drop was the worst since the current IBGE series began in 1996. The 2020 plunge was also the worst since a 4.35% fall in GDP recorded in 1990, according to central bank data going back to 1962, and the third-steepest in that series.

Among the gloomiest forecasts at the onset of the pandemic, the World Bank and International Monetary Fund estimated that Brazil’s 2020 GDP would shrink by 8% and 9.1%, respectively.

The 3.2% expansion in the fourth quarter was led by 2.7% growth in services, 3.4% expansion in household consumption, and a 20% surge in fixed business investment, IBGE said.

“We had a big fall (in activity) last year, but with the emergency aid, it was much smaller than originally predicted. It could have been much worse … but the public finances are now very fragile,” said Alexandre Almeida, economist at CM Capital in Sao Paulo.

The government’s cash transfers to millions of poor families last year totaled some 322 billion reais ($56.5 bln), a fiscal boost of around 4.5% of GDP.

Mexico, which did not provide anywhere near as generous a fiscal support package, saw its economy slump 8.5% last year.

Over the course of the year, however, only Brazilian agriculture showed positive growth, up 2% from 2019. Services and household consumption fell 4.5% and 5.5%, respectively, due to COVID-19 and restrictions to combat its spread.

GDP per capita fell 4.8%, IBGE said, the steepest fall since at least 2000.

IBGE figures show economic activity is still 1.2% below its level at the end of 2019 and 4.4% below its peak in 2014.