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SAO PAULO (Reuters) – The Brazilian economy will experience its worst contraction in history in 2020, with “bigger” than expected impacts of coronaviruses, Citi said in a note to clients on Monday, which also lowered expectations for inflation.
Leonardo Porto and Paulo Lopes, who sign the document, make it clear, however, that the “significant” revisions to the estimates have yet to incorporate the recent political turmoil.
Professionals see that the Gross Domestic Product (GDP) fell 4.5% this year, with an unemployment rate that reached a peak close to 17% in the third quarter of 2020.
In early April, Citi experienced a 1.7% retraction in 2020.
The economy bottoms out this April. But from Citi’s point of view, mobility restrictions will not be relaxed until the end of July, which will keep the economy running at its lowest point until then.
“The path to recovery will be gradual, as mobility restrictions are unlikely to be lifted simultaneously across all sectors, easing the supply shock in stages,” Porto and Lopes said in the report.
Citi projects that GDP fell 0.6% in the first quarter and 7.7% in the second. Between July and September, the economy is expected to grow 0.9% and 2.5% in the last three months of the year.
In 2021, activity will increase 3.9%, “favored by the weaker comparison base this year.”
Citi began to see that inflation was still below the target floor, supporting the scenario of further monetary easing in the short term.
The HICP is expected to remain at 2.4% in 2020, below the rate of 2.5% (lower limit of the band whose center of target is 4.0%).
On the monetary policy side, the bank said it maintains a cut estimate of 0.50 percentage points of the Selic rate in May and another 0.50 points in June, which would push interest to a new record low of 2 , 75% over the year, compared to the current 3.75%.
Citi calculates the primary deficit at 647 billion reais (9.1% of GDP) in 2020, with gross debt of 89.6% of GDP, compared to 75.9% in 2019.
The bank sees the dollar at 4.73 reais, far from Monday’s exchange rate of 5.6335 reais to the dollar.
(By José de Castro)
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