Economy

Forecasts for GDP in the second semester indicate a risk of technical recession in Brazil

Paulo Guedes asks "for a year or two" of liberal policies to change the country

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  • IBC-Br, considered an indicator of the GDP, registered a contraction of 0.13% during the second trimester of 2019;
  • The official numbers of the GDP during the first semester will only be announced on August 29th, but historically the IBC-Br indicator has tended to confirm the official economic Index;
  • The Minister of Economy, Paulo Guedes, asked that Brazilians continue to support the possibility of a liberal democracy.

The Brazilian Index of Economic Activity (IBC-Br), considered an indicator of the GDP, registered a contraction of 0.13% during the second trimester of 2019. The economic indicator was disclosed this Monday (August 12th) by Brazil’s Central Bank. Since the first three months of the year had already registered a contraction (-0.2%), there is a risk of technical recession in Brazil – this occurs when the economy shrinks for two or more consecutive trimesters.

The official numbers of the GDP during the first semester will only be announced on August 29th. Historically, in the meantime, the IBC-Br indicator has tended to confirm the official economic Index.  It is a fact that the country is still experiencing high unemployment rates, that Brazil’s industry has registered a contraction (-0.1% in May and -0.6% in June) and shrunk in productivity (-1.2% in the first trimester, according to the Getúlio Vargas Foundation), and that Brazilian commerce has accumulated negative results, among other negative indicators.

Also in this second trimester, banks in Brazil put on the brakes concerning the release of credit. Bradesco, Itaú, and Santander lent 10% more during the first trimester, compared to the last trimester of 2018. In the second trimester, however, lending has dropped 7.5%.

Besides unsettling, the statistics disclosed this Monday (August 12th) also bring with them chances for recovery. Formal employment was created in the last few months, and investments in new companies and segments with high-growth indexes – such as financial services and e-commerce –  in the country continue on a firm trend.

According to the Brazilian newspaper Valor Econômico, also this Monday (August 12th), the Minister of Economy, Paulo Guedes, asked that Brazilians continue to support the possibility of a liberal democracy.

“Give a year or two, give liberal democracy a chance. Learn to wait for your turn,” said the minister while participating in a seminar in the Supreme Justice Court concerning the Provisional Policy no. 881 in 2019, titled the “Provisional Policy of Economic Freedom” (in Portuguese, “MP da Liberdade Econômica”).

The text, which has to be voted on this week in Congress, or else it will expire, stipulates a series of simplifications to reduce the bureaucracy that affects startups and small-to-medium sized companies in the country.