Economy

Brazil is already in recession, say experts from Getulio Vargas Foundation (FGV)

Unlike the usual metric that indicates a technical recession after two consecutive quarters of GDP contraction, these experts adopt a broader analysis of data

Brazilian currency reais
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  • The latest official data released by the Brazilian Institute of Geography and Statistics (IBGE) indicates that the country’s GDP fell 1.5% in the first quarter of 2020 compared to the previous quarter;
  • The country’s Central Bank forecasts a 6,4% contraction of Brazil’s GDP this year – a much more optimistic prediction than the ones from IMF (a fell of 9.1%) and the Fitch (a contraction of 7%).

Brazil entered a recession in the first quarter of 2020 after an expansion cycle that lasted 12 quarters. That’s the diagnosis of the Economic Cycles Dating Committee (Codace, in the acronym in Portuguese), a committee created by the Brazilian Institute of Economics (IBRE), within the Getulio Vargas Foundation (FGV) released on Monday.

Unlike the metric normally used by economists that a technical recession occurs when there are two consecutive quarters of contraction of the Gross Domestic Product (GDP), Codace adopts a broader analysis of data. Its aim is determining a reference chronology for Brazilian economic cycles, established through the alternation between dates of peaks and troughs in the level of economic activity.

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“A cyclical phase marked by a widespread decline in economic activity among different sectors of the economy is a recession. The phase between a trough and a peak in the cycle is known as expansion,” writes the committee.

Source: Codace/IBRE/FGV.

According to Codace, the expansion cycle ended in the fourth quarter of 2019 marks the end of the recession from 2014 to 2016, the longest in Brazil’s economic history. Initially, Codace had dated this retraction cycle between the second quarter of 2014 and the fourth quarter of 2016.

Source: Codace/IBRE/FGV.

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The latest official data released by the Brazilian Institute of Geography and Statistics (IBGE) indicates that the country’s GDP fell 1.5% in the first quarter of 2020 compared to the previous quarter. It was the biggest quarterly contraction since the decrease of 2.1% in the second quarter of 2015.

The country’s Central Bank forecasts a 6,4% contraction of Brazil’s GDP this year – a much more optimistic prediction than the ones from IMF (a fell of 9.1%) and Fitch Ratings (a contraction of 7%).

As reported by Folha de S.Paulo, the US also has a committee similar to Codace. In early June, the committee of the National Economic Research Office (NBER) decreed that the country entered its first recession since 2009, after 128 consecutive months of uninterrupted growth in the economy, a record since the beginning of the measurement, in 1854. The country’s GDP fell by 1.2% in the first quarter.