Brazil’s economy shrank in the first quarter of this year, paving the way for a recession as the country emerges as a global coronavirus hotspot following President Jair Bolsonaro’s widely criticised response.
Gross domestic product in Latin America’s largest economy dropped 1.5 per cent in the first quarter from the final quarter of 2019, official data on Friday showed. Compared with the same period in 2019, the Brazilian economy shrank 0.3 per cent.
“The same thing happened in Brazil that happened in other countries affected by the pandemic, which was a drop in services to families due to the closure of establishments. Durable goods, vehicles, clothing, beauty salons, gyms, accommodation, food have all suffered a lot from social isolation,” said Rebeca Palis of IBGE, the national statistics institute.
“Even if the quarantine is lifted, economic recovery will be very slow in Brazil. Lots of companies will fail, lots of people will be unemployed,” warned Luana Miranda, a researcher at the Brazilian Institute of Economics.
On Thursday, IBGE data showed that 4.9m Brazilians lost their jobs in the three months through April, pushing the number of people out of work to 12.8m since lockdowns to fight the pandemic started in late March.
“We expect Brazil to experience a sharp contraction of activity in 2020, concentrated in the first half of 2020, which is likely to lead to a significant further deterioration of the already weak labour market,” said Alberto Ramos, Latin America economist at Goldman Sachs, who has forecast that the country’s economy will shrink 7.6 per cent this year.
In Brazil, the number of coronavirus infections topped 438,000 on Thursday — the second-largest number of overall cases after the US — with almost 27,000 fatalities. Experts at the Getúlio Vargas Foundation estimated the total number of cases could top 34m by the end of the pandemic.
Across Latin America, the outbreak is causing a devastating economic crisis. Mr Bolsonaro has called lockdowns a “crime” and excoriated governors who imposed them as “job killers”. Even before the pandemic, Brazil’s economy was in dire straits, having yet to recover from a brutal recession five years ago.
Its public finances were also under heavy pressure before the virus. The economy ministry’s emergency support package of R$1.2tn ($222bn) is more than the entire projected savings from a pension reform passed last year. This has created fiscal strain, forcing finance minister Paulo Guedes to freeze his reformist agenda.
The combined impact of the fiscal stimulus — including a monthly stipend of R$600 ($111) to low-income citizens to help weather the storm for three months — is likely to push Brazil’s fiscal deficit to 19 per cent of GDP this year, according to calculations from Mr Ramos.
Meanwhile, shaken by a double-blow of the pandemic coupled with Mr Bolsonaro’s political crises, the Brazilian real has accelerated its fall, dropping 32 per cent against the dollar since January.
“The domestic political scenario started to add pressure to the Brazilian currency, contributing to the real being among the worst emerging currencies this year,” said Luciano Rostagno, chief strategist at Banco Mizuho São Paulo.
Source: Economy - ft.com
