July 07, 20 - 11:01 am - LABS

Brazil: Investments grew strongly in May, but not enough to completely overcome the crisis

The Brazilian Institute for Applied Economic Research (Ipea) released this Tuesday its Indicator of Gross Fixed Capital Formation (GFCF). After two months of record drops – 13.4% in March and 27.5% in April –, investments grew strongly in May, 28.2%, the highest monthly increase since February 1996, the beginning of the indicator’s historical series.

The best month came right after de worst month of the historical series, April, and it was not enough to completely overcome the negative effects of the COVID-19 pandemic. In May, the indicator was 19.5% lower than in February, before social isolation decrees paralyzed factories and other economic activities.

In May, the apparent consumption of machinery and equipment grew 68.7% compared to April. Another component of the investment indicator that grew was civil construction, which increased 14.1% in May over April.

Why is this indicator important?

This indicator is important because it shows how confident the productive sector is on the verge of effectively investing in equipment, building assets, etc.

In a time of crisis, it is this willingness and investment capacity that can help a country to resume its economy, whether it is something completely leveraged by the private sector through important reforms (and Brazil has a relevant agenda in this sense to execute) or something helped by the direct investment by the government, in addition to privatizations and service concessions for the private sector, which also helps the country to cover part of the fiscal gap caused by the crisis.