Economy

Brazil's GDP to fall 5% or more this year, says Central Bank's president

In the first quarter, the country's GDP decreased 1.5% when compared to the fourth quarter of 2019

brazilian currency
Photo: Vinicius Bacarín/Shutterstock

Brazil‘s Gross Domestic Product (GDP) decreased 1.5% in the first quarter of this year, compared to the fourth quarter of 2019, according to the Brazilian Institute of Geography and Statistics (IBGE) seasonally adjusted data disclosed this Friday.

Speaking in a live webinar event hosted by Valor Capital Group, the Brazilian Central Bank’s president Roberto Campos Neto said that the country’s economy will likely shrink by 5% or more in 2020–which would be a record annual downturn, according to Reuters.

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Campos Neto also said that a coronavirus-fueled ‘fear factor’ will hang over the world economy at least until the middle of next year.

For now, the federal government expectation for the year is a little bit more optimistic, around a 4.7% drop. But the COVID-19 crisis is unlike any other that the country has gone through. That was what highlighted the head of the National Accounts department at IBGE, Rebeca Palis, during the presentation of the data, according to the newspaper Valor Econômico.

According to her, this was the most intense economic downturn since the second quarter of 2015 (-2.1%), caused, for the first time in the recent history of the country, by a supply shock and a demand shock at the same time.

The service sector, which accounts for around 70% of the Brazilian GDP, fell 1.6% in the first quarter of this year. Household consumption fell by 2%.

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In a column on the E-Investidor portal, the Brazilian political scientist, and director of strategy for Arko Advice, which directly advises dozens of foreign investment funds in Brazil and Argentina, Thiago de Aragão says that international investors have already “normalized” political chaos in Brazil, but that there are factors that can further undermine international confidence.

He says that, within the binary logic that prevails today, we are induced to make a reading that the foreign investor is optimistic or pessimistic in relation to the country. “However, different degrees of pessimism can generate a sense of opportunity or protection.” What could represent protection? The departure of Economy Minister Paulo Guedes from Jair Bolsonaro‘s government (something already ventilated by analysts), the postponement of reforms, or even specific bills, such as the opening of the sanitation sector to the private sector.

As the crisis arrives, COVID-19 cases climb in the country. Until this Friday, Brazil registers more than 438 thousand confirmed cases, and 26,754 deaths due to the new coronavirus. With this, the country surpasses Spain in the number of deaths, and it’s only behind the U.S. in the number of cases.