Economy

Brazil economy back to 2009 size after record 9.7% slump in second quarter

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

REUTERS/Amanda Perobelli
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  • The country’s economy  is unlikely to grow back to where it was last year until 2023, says analyst;
  • The Economy Ministry was more upbeat, noting that many of Brazil’s emerging market peers posted larger GDP contractions.

Brazil’s economy shrank 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% fall in gross domestic product from the prior quarter, government statistics agency IBGE said on Tuesday, and an 11.4% decline compared with the same period last year.

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

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%.

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

Carlos Kawall, director at ASA Bank

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Kawall added that he is revising down his 2021 growth forecast to 2.1% from 2.7% due to uncertainty about the labor market and consumption outlook.

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.

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The government’s current forecast is for a 4.7% 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% decline.

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

The value of Brazil’s GDP at current prices was BRL 1.65 trillion ($306 billion) in the second quarter, IBGE said. IBGE also revised the January-March figures to a 2.5% fall in GDP from the initial estimate of a 1.5% decline.