Brazil plans to cut GDP growth forecast on coronavirus risks
An analyst says the virus outbreak could affect Latin America’s largest economy if commodity prices remain low for a long time
Brazil is likely to cut its official estimate for 2020 gross domestic product (GDP) growth this week, due to the effects of the coronavirus outbreak, a government official said in comments published recently.
Speaking to Brazil’s O Estado de S. Paulo newspaper, Brazil’s Economic Policy Secretary Adolfo Sachsida declined to give specific numbers, and added that he did not see fiscal stimulus as necessary at the moment.
“We will have a more solid position (regarding GDP) soon,” Sachsida said, according to the newspaper.
Earlier in February, Sachsida said that a prolonged coronavirus outbreak could affect Latin America’s largest economy if commodity prices remain low for a long time. At the time, he said he did not see a reason to reduce the government’s GDP growth forecast, which is currently 2.4%.
Brazil’s Economy Ministry did not immediately respond to a request for confirmation or comment on the Estado de S. Paulo article.
Brazil’s economy likely failed to accelerate in the final three months of last year, growing by only 0.5% and prolonging what is already the weakest recovery from recession on record, according to a Reuters poll of economists conducted this week. A halt in
Brazil’s economic momentum before the turn of the year would put Latin America’s largest economy on weak footing even before the coronavirus outbreak, which has spread to dozens of countries, rattled financial markets, and now has many investors fretting about a global recession.
“Even before (the outbreak), we were revising our forecasts due to the weak performance of the economy at the end of 2019. Adding expected effects of the virus crisis and some worsening in domestic politics, it’s hard to avoid forecasting a very weak year ahead,” Jose Francisco de Lima, chief economist at Banco Fator in Sao Paulo.
Brazil’s gross domestic product likely grew just 0.5% in the fourth quarter of 2019, according to the median of 26 forecasts in a Feb. 24- 28 Reuters survey, slower than the 0.6% increase in the previous three- month period.
The forecast range was 0.0%-0.7%. Compared with a year earlier, the median estimate for Q4 growth was 1.5%, a bit higher than 1.2% in July-september.
The latest data are scheduled for release on March 4. The slowdown would confirm recent data reflecting a tepid macroeconomic performance as 2019 drew to a close, when manufacturing, consumer activity and other sectors undershot market hopes.
“Industrial production, retail sales and service sector numbers were somewhat weaker than in Q3,” said Fabio Ramos, an economist at UBS, citing recent softness in a leading indicator for growth published by the central bank.
If accurate, the latest forecasts would mark the end of a brief uptrend that started in 2019 after President Jair Bolsonaro took office vowing to reignite growth by pushing reforms aimed at trimming the size of the government.
But consumer spending and investment remained muted throughout the year following a blow to sentiment inflicted by the dilution of a landmark pension overhaul in Congress.
The latest consensus view for 2020 held at 2.1% in the survey, the same as January’s estimate, suggesting that, for now, economists don’t see a substantial hit.
However, economists were not fully confident and were divided over Brazil’s ability to reach the minimum 2% growth goal that Economy Minister Paulo Guedes has set for this year.
Replies to a question in the poll showed three of 14 analysts thought it was “very likely” the economy would expand less than 2% in 2020 while five said it was “likely.” The other six said this was “unlikely.”
Much will depend on how a new set of reforms fares among lawmakers. A slight majority of eight out of 14 economists who answered a separate question said Bolsonaro’s plans for this year were likely to be passed in time and form.
The remaining five said this was unlikely. JP Morgan analyst Cassiana Fernandez said she was “skeptical” about the chances of approval for wide- ranging reforms, including a bill to modernize Brazil’s complex tax system.
She added that Congress may end up passing less challenging initiatives. First in line would be an administrative change that seeks to reduce public-sector costs and benefits and to make it easier to fire workers, analysts in the poll said.
An increasing number of banks and consultancies are already revising their forecasts downward, anticipating a second year of economic disappointment that could become a political liability for the government before municipal elections in October.