July 14, 20 - 1:40 pm - LABS

Brazil’s ‘GDP preview’ drops 11.43% from March to May

The crisis caused by the COVID-19 pandemic caused economic activity in Brazil to drop 11.43% between March and May. In three months, the Central Bank Activity Index, IBC-Br, which is considered a preview of the country’s Gross Domestic Product (GDP), went from 139.84 points to 120.42 points.

These three months also correspond to the period of strongest application of social isolation measures in Brazilian cities as a way to contain the spread of the new coronavirus. It is the biggest percentage drop for a three-month period in the historical series of the index, which began in 2003.

The Brazilian government says that “the worst is over”, and the IBC-Br data, in fact, indicates that a recovery has begun to be outlined: in May, the IBC-Br increased 1.31% over April, in the seasonally adjusted series. The increase is the first to be registered since February.

Looking at the chart month by month it is also possible to see that the drop in economic activity in Brazil is still not comparable to that of the country’s last crisis, from 2014 to 2016.

IBC-Br – economic activity (var. % in 12 months, monthly data)

Source: Brazil’ Central Bank.

In a note to investors, the chief strategist at modalmais, Felipe Sichel, said that “the data reinforce the correlation between the relaxation of social isolation and resumption of economic activity”, and that, given the continuation of this reopening movement, it is experienced that the resumption will also continue. “Evidently, the main uncertainty remains around the pace of pandemic control,” said Sichel.

This week, the Focus Bulletin of the Brazilian Central Bank, which gathers the forecasts of the main banks and institutions in the country, brought a slightly more optimistic projection for the country’s GDP in 2020: a decrease of 6.1%. In the previous week, the average forecast was 6.5% drop.