World Bank Projects Eight Percent Drop in Brazil’s GDP in 2020

RIO DE JANEIRO, BRAZIL – The novel coronavirus pandemic will cause economic activity in Brazil to contract eight percent in 2020, the World Bank projects in a new report released on Monday, June 8th. A drop of such magnitude would be the greatest in 120 years, a period for which the official statistics institute, IBGE, has data on the evolution of the country’s Gross Domestic Product (GDP).

The collapse of the Brazilian economy is just one of the many faces of the “severe recession” that the World Bank predicts in the global scenario as a result of Covid-19. The need for social isolation has forced several countries to impose temporary closure measures for schools, parks, and businesses, with repercussions on production, income, and employment.

In World Bank projections, the “rapid and massive shock” of the pandemic and the total shutdown measures to contain it will cause the global economy to contract by 5.2 percent this year.

“This would represent the deepest recession since World War II, with the largest proportion of economies since 1870 experiencing a decline in per capita output,” the institution says in its Global Economic Prospects publication. According to the report, more than 90 percent of 183 economies should experience a downturn due to Covid-19, a higher proportion than in the great depression of the 1930s (when it stood at 85 percent).

The expected drop in per capita income is 3.6 percent, which will lead millions into extreme poverty this year, according to the World Bank.

According to the institution’s economists, the blow affects the countries where the pandemic was most severe and where there is a strong dependence on global trade, tourism, the export of primary products, and foreign financing. Although the magnitude of shocks varies from one region to another, emerging economies display vulnerabilities that are compounded by external shocks. Greater informality in the labor market is one of them.

“In addition, interruptions in the school system and in access to primary health care are likely to have lasting impacts on human capital development,” says the World Bank.

“This is a deeply discouraging prospect, with the likelihood that the crisis will cause lasting scars and impose major global challenges,” said Ceyla Pazarbasioglu, vice president of Fair Growth, Finance and Institutions at the World Bank Group. “Our first priority is to address the global health and economic emergency. In addition, the global community must unite to find ways to rebuild the most robust rebound possible to prevent more people from falling into poverty and unemployment”.

For 2021, the World Bank has set some baseline projections, which assume that the pandemic will mitigate sufficiently to allow for the suspension of disease mitigation measures by mid-year in advanced economies, and somewhat later in emerging economies; that adverse global side effects will mitigate in the second half of this year; and that financial market shifts will not be lasting. In this scenario, global growth should be 4.2 percent in 2021, but less intense in Brazil, with an increase of 2.2 percent.

“However, the outlook is extremely uncertain, with the predominance of downside risks, including the possibility of a longer-lasting pandemic, financial instability and the retraction of global trade and supply chains,” acknowledges the World Bank. According to the institution, a more negative scenario could lead to a reduction of the global economy by up to eight percent this year, followed by a slow rebound in 2021 of only one percent.

The report also argues that emerging and developing economies with available fiscal space and affordable financing conditions should assess “additional incentives” if the impacts of the pandemic persist.

“This should be coupled with measures to help restore medium-term fiscal sustainability, including measures to strengthen fiscal frameworks, increase domestic revenue mobilization and expenditure efficiency, and increase fiscal and debt transparency. Transparency about all financial commitments, investments, and instruments such as public debt is a critical step in creating an attractive investment climate and could make substantial progress this year,” the paper says.

Source: Estadão Conteúdo