Coronavirus: Brazil expects a recession to a record in 2020

Coronavirus: le Brésil s’attend à une récession record en 2020

The figures of the growth of the brazilian in the first quarter will be Friday, an idea of the magnitude of the crisis caused by the pandemic coronavirus, analysts forecast a recession record high in 2020 in a country marred, moreover, by the political tensions.

The most optimistic expect a fall of -6% of GDP this year for the first economy in Latin America, and the most pessimistic -10%, with an unemployment rate above 18%, compared to 12.2% currently.

The economy is at the heart of all the political battles in the midst of a crisis of health, the president of extreme right-wing Jair Bolsonaro calling déconfinement to preserve employment, while the number of deaths has continued to increase and is expected to cross the milestone of 25 000 on Wednesday.

On Tuesday, the president of the Chamber of deputies defended the containment measures taken by the governors of most states. “The containment is not guilty of the collapse of the economy, the culprit is the virus”, he stated during a speech.

The warning signals for the economy have increased since the month of march, when the effects of the pandemic have begun to make themselves felt. The industrial production has dropped heavily, of -9,1% compared to February. The car production is virtually stationary, with a fall of -99% in April.

For the first quarter of 2020, the Getulio Vargas Foundation predicts a contraction of -1% of GDP compared to the last quarter of 2019, but a growth of 0.3% year on year.

But this is the second quarter that the situation should really be getting worse, with the projection of a fall of -9,6% compared to the first and’s-10.4% year on year.

The “lost decade”

The government was forecasting, for its part, in mid-may on a contraction-4.7%, thanks to an improvement of the economic situation in the second half.

But even this forecast is more optimistic, reported a record loss on a calendar year, more sharply than during the historic recession of 2015 (-3,5%) and 2016 (to 3.3%). Since then, the brazilian economy has never truly identified, with a growth of just over 1% in the last three years.

The worst years recorded by the statistical institute IBGE are 1981 (-4,25%) and 1990 (-4,35%), who were influenced by what economists refer to as the “lost decade” for Latin America, leaded by the debt crisis.

If the forecast of the government for 2020 (down 4.7%) were to be confirmed, the average growth of the country in ten years would be practically null (0,11%).

In early may, the financial ratings agency Fitch has lowered the prospect of long-term debt of Brazil (currently ‘ BB -‘) to negative from stable.

According to the government’s projections, brazilian debt is expected to exceed 90% of GDP in December, up from 78% in march.

Most of the experts differ, however the threat of a default of payment, to the countries with reserves comfortable ($340 billion at the end of April) and the bulk of its debt is denominated in local currency, not affected by the strong depreciation of the real against the dollar (by almost 40% this year).

Political uncertainties

The situation in Brazil is exacerbated by an unstable political climate, the president Bolsonaro being in permanent conflict with the governors who have imposed the measures of containment to try to stem the pandemic.

The head of the State advocates the resumption of economic activities to preserve employment and to avoid “social chaos” that, according to him, could have consequences more devastating than the health crisis.

But unlike the european countries who have started a déconfinement progressive, the curve of the contamination is on the rise in Brazil.

To Andre Perfeito, from the consultancy firm Nekton, Brazil has, in theory, “the resources necessary to combat the pandemic”, but “the political problems render the response ineffective.”

The government has put in place programmes to help the more vulnerable population, including an allocation of 600 réais (about € 100) for the working poor dependent on the informal economy, but many experts consider these measures insufficient.

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