Second Covid-19 wave slows economic recovery in Brazil back after 10 months’ growth

RIO DE JANEIRO, BRAZIL – After ten months of recovery, economic activity retreated again in Brazil, amid the second wave of the novel coronavirus pandemic.

The Central Bank’s Economic Activity Index (IBC-Br), released this Thursday, May 13, pointed to a retraction of 1.59% in March, compared to February. This percentage considers seasonal adjustments, which enables month-to-month comparisons.

This was the first drop in activity since April last year, at the start of the first wave of the pandemic. In that month, the IBC-Br plummeted 9.82%, influenced by lockdowns in several cities across the country and by the closing of thousands of companies. Since then, economic activity had been recovering in Brazil, having accumulated a high of 18.76% from April last year to February 2021.

The downturn seen in March this year, as reported by the IBC-Br, is influenced by the second wave of Covid-19, which again caused lockdowns in several cities in Brazil. Trade closures in different periods were a reaction from mayors and governors to the upsurge in infections and deaths from Covid-19. In parallel, Brazil continues to show limited vaccination figures.

Measured in points, the IBC-Br dropped from 142.43 in February to 140.16 in March 2021, in the seasonally adjusted series. However, the 1.59% drop was expected by most of the financial market. Analysts consulted by Projeções Broadcast projected the IBC-Br in March to drop 4.50%. The median of projections pointed to a drop of 3.30% – an even higher percentage than observed.

In recent months, members of Jair Bolsonaro’s government economic team had said that, due to the second wave, Brazil would again show a downturn in business activity in the first half of the year.

Central Bank President Roberto Campos Neto has been arguing that the economy will tend to react in the second half of this year, as vaccination progresses. The immunization figures, however, are still limited.

With less than two months to go until the end of the first semester, data from the media outlet consortium show that only 8.8% of the population has been administered both doses of the Covid-19 vaccine. Brazilians who have been vaccinated with at least the first dose account for 17.5% of the total.

Known as a kind of “Central Bank’s preview of the GDP,” the IBC-Br serves as a parameter to assess the pace of the Brazilian economy over the months. The current Central Bank projection for the GDP in 2021 is for a rise of 3.6%, after a 4.1% retraction in 2020.

However, financial market economists are showing some pessimism. In the Focus Market Report, which presents the compilation of financial market expectations, the projection for the GDP in 2021 is for a rise of 3.21% – less than expected by the Central Bank. Furthermore, there is at least one institution that projects a much lower growth for this year, of only 0.44%.

For now, due to the performance seen in January and February – when the second wave of the pandemic had not yet caused as many negative impacts on the economy – the IBC-Br accumulated a rise of 2.27% in the first quarter 2021, in the series without seasonal adjustments. In the 12 months to March, however, the indicator shows a 3.37% retraction.