Brazil’s economy shrinks by most on record in 2Q, GDP falls 9.7%

Brazil’s economy has shrunk in the second quarter by the most on record as anti-coronavirus lockdown measures slammed activity in almost every sector, dragging Latin America’s largest economy back to the size it was in 2009.

The pandemic triggered a 9.7 percent fall in gross domestic product (GDP) from the prior quarter, government statistics agency IBGE said on Tuesday, and an 11.4 percent decline compared with the same period last year.

The magnitude of the slump in activity across the economy in the second quarter was huge: Industry fell 12.3 percent, services 9.7 percent, fixed investment 15.4 percent, household consumption 12.5 percent and government spending 8.8 percent.

Household consumption, which accounts for two-thirds of all economic activity in Brazil, was a particularly heavy drag, IBGE said.

Only agriculture expanded in the quarter, by 0.4 percent.

Brazil’s economy is now 15 percent smaller than it was at its peak in 2014. 

Carlos Kawall, director at ASA Bank and a former treasury secretary, said Brazil’s economy is unlikely to grow back to where it was last year until 2023.

“It’s a horrible period for the economy. From the standpoint of the economy, social implications, and unemployment, it has been a disaster,” he said, adding that he is revising down his 2021 growth forecast to 2.1 percent from 2.7 percent due to uncertainty about the labour market and consumption outlook.

It's a horrible period for the economy.

by Carlos Kawall, director at ASA Bank and a former treasury secretary

The economy ministry was more upbeat, noting that many of Brazil’s emerging market peers posted larger GDP contractions in the second quarter and that the outlook for this year has been brightening in recent weeks.

“High-frequency indicators show that activity continues to recover. However, for the rebound to be consistent, it is important to continue the structural reform and fiscal consolidation agenda,” it said in a statement.

Economy Minister Paulo Guedes said the Q2 figures were a “distant sound, the sound of the pandemic’s impact back then”, and that the economy has begun a “V-shaped” recovery.

But economists at Goldman Sachs and Citigroup cut their 2020 GDP forecasts to -5.4 percent from -5 percent and to -6.5 percent from -6 percent respectively.

The government’s current forecast is for a 4.7 percent contraction in GDP this year, which would still be the largest annual fall since records began in 1900. The average forecast in a weekly central bank survey of economists is for a 5.3 percent decline.

The downturn in the April to June period was steeper than economists had expected. The median estimates in a Reuters poll of economists were for a 9.4 percent fall on the quarter and an annual decline of 10.7 percent.

The value of Brazil’s GDP at current prices was 1.65 trillion reais ($306bn) in the second quarter, IBGE said.

IBGE also revised the January to March figures to a 2.5 percent fall in GDP from the initial estimate of a 1.5 percent decline.