Projection Revisions Point to Decline of Up to Nine Percent in Brazil’s 2020 GDP

RIO DE JANEIRO, BRAZIL – The unpredictability created by the coronavirus pandemic is causing public and private institutions to revise their projections on Gross Domestic Product (GDP) in 2020 almost weekly.

Economist Monica de Bolle, a researcher at the Peterson Institute for International Economics in the United States, is now working with a six to nine percent decline, higher than the five percent decline she had expected three weeks ago.

“The deterioration is attributed to the government’s delay in implementing measures to contain the recession,” Bolle says.

She also points out that the projected decline for the US GDP is almost five percent, “so it is unreasonable to think that in Brazil it will be the same. It will, of course, be worse,” she says. Monica was one of the first economists to address the risk of recession in Brazil this year.

Over two months ago, the economists heard by the Central Bank for the Focus Bulletin also worsened their projections. The figures came in on Monday, April 13th, at a decline of 1.96 percent, mainly reflecting the expected deterioration in industrial production.

Another revision was announced by the International Finance Institute (IIF) on Thursday, April 9th. The institution expects a 4.1 percent drop in GDP this year and points out that the Brazilian economy had not fully recovered from the 2015 recession.

Economy Minister Paulo Guedes supposedly said, in a videoconference with senators on Friday, that the drop could be four percent in the year’s GDP, if the shutdown triggered by the coronavirus were to extend beyond July.

According to the IIF, emerging economies will be the most affected by the recession, with Latin America’s GDP down five percent in the year.

The IIF’s projection for Brazil’s GDP in 2020 is in line with that released by the BNP Paribas on April 7th. At the time, the bank said that “although the shutdown is required to contain the outbreak, it could have serious consequences for the economy”.

In a report, the institution highlights two measures announced by the government as the most important, from both a budgetary and necessity perspective.

One of the measures, which ensures the monthly payment of R$600 to casual and self-employed workers for three months “is the key to the success of the shutdown,” says the bank.

Another vital program is the financial aid for companies that decide to retain employees, but under a more flexible employment regime. According to this program, the government has committed to paying up to 70 percent of the unemployment insurance to which the employee would be entitled if dismissed.

Other revisions

Last week Santander also released a revised -2.2 percent of its 2020 GDP projection.

“Given the expected loss of economic demand and productive capacity, we will not see a V recovery (in which the rebound is as fast as the drop), but a U recovery, that is, gradual over the next few years,” said Ana Paula Vescovi, Santander’s economist in a teleconference with journalists on Monday, April 6th.

The institution emphasizes that, in this base scenario, Brazil will reach the end of 2021 “almost at the pre-crisis level (of the coronavirus)”.

Two weeks ago UBS bank cut its 2020 GDP projection from 0.5 to a two percent drop. The bank stresses factors such as Brazil’s poor growth even before the pandemic, sharp drops in activity data in early March and worsened financial conditions.

This scenario assumes that restrictions on mobility and the social distancing measures implemented to control the outbreak will come to an end in May. If this is possible, the bank believes in a rebound in the second half of the year.

One day before UBS, the Bank of America (BOFA) announced that it sees a 3.5 percent contraction in GDP in 2020.

The bank points out that among Latin American countries, Brazil is one of the most sensitive to commodity prices (which have been dropping for months, following the strong contraction in global demand) and to the Chinese market, Brazil’s largest trading partner. This projection also incorporates the strong impact on consumption and investment, due to the partial shutdown of activities in the country.

BOFA also mentions that the absence of an effective political response to control the spread of the virus in developed markets and some emerging markets, has led the institution to reduce its projection for global GDP growth in 2020 from a positive 0.3 to a drop of 2.7 percent.

“This should be a considerably worse recession than in 2008/09. Both policymakers and the public in many economies have not learned China’s lesson: the most effective policy is a quick and strict shutdown,” the BOFA says in a report.

Source: Exame