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SÃO PAULO – With the isolation measures necessary to contain the impact of the coronavirus focusing on the second quarter, the expectation is that the Gross Domestic Product (GDP) for the period, which will be published this Monday (1) by the Brazilian Institute of Geography and Statistics (IBGE) at 9 in the morning (Brasilia time) also shows a considerable drop.
However, amid indications that the resumption of Brazilian activity is occurring at a faster rate than expected, at least in most sectors, investors will also look for more signals that could reinforce the return of the economy. it’s really happening in a sustainable way.
As Morgan Stanley points out, in Latin America in general, the growth data of the Latin American economy ended up being worse than the most negative forecasts. The exception is precisely Brazil, where the outlook looks more promising, “probably due to the considerable income transfer program (emergency aid), which has maintained resilient consumption so far”, in addition to the easing measures ahead of expectations. . Economists point out that broader restrictive measures appear unsustainable in Brazil (and the region as a whole), given the high informality of the economy.
As a result, Brazil was the only country in the region in which the bank’s economists revised up their growth projections for 2020, going from a 7.2% drop to a 5.1% drop (see more forecasts by clicking here) .
The US bank expects a 9.5% drop in GDP in the second quarter compared to the first three months of the year – almost half of the 17.1% drop in Mexico on the same basis of comparison – and a 10.2 decrease % compared to the same period of 2019.
Based on the Bloomberg consensus median, the estimate is for a 9.2% drop on the quarterly basis, after a 1.5% drop in the first quarter. The drop must have been 10.6% in the annual comparison, according to the survey.
For Bradesco’s economic analysis team, the decline should have been less, 8.9% in the last quarter. “The data should reflect the retraction of household consumption and gross fixed capital formation, reflecting the measures of social distance and the high level of uncertainty in the period”, assess the economists.
Also seeing a less significant drop, XP Investimentos expects an 8% drop in quarterly GDP, attenuated by agriculture, a sector driven by the good moment of international demand, mainly from China, and by the depreciation of the real (21% annually ). ). Thus, the expectation is an expansion of 1.1% for the agricultural sector compared to the first quarter of this year and 2.3% compared to the second quarter of last year.
“Compared to the same period in 2019, we expect GDP in the second quarter of 2020 to contract by 9.8%. Compared to the first quarter of this year, we anticipate a drop of 8%, driven mainly by manufacturing (-15.9%), other services (-18.9%) and gross fixed capital formation (-20 ,two%). %) ”, Evaluates the XP economic analysis team.
More pessimistic, SulAmérica estimates that GDP should have fallen 9.5% in the quarterly comparison, which represents a decrease of 10.2% compared to the same period in 2019. “From the supply perspective, agricultural production must show positive growth in the period, while industry and services are likely to experience significant declines, on a quarterly basis, ”he says.
Next steps
Looking ahead, Morgan economists estimate that the eventual reduction in the amounts paid through emergency aid should limit the rate of recovery in consumption. However, they believe that activity should continue to improve gradually as the service sector recovers.
In addition, the external sector should continue to improve growth prospects, in line with economists’ vision of a V-shaped recovery in the world economy. Added to this is the bank’s assessment that domestic demand should benefit from lower interest rates. There is concern about the tax issue; however, they point out, the higher spending may be offset by some progress in tax reform in the coming months.
“However, we still see a gradual recovery: we expect the Brazilian economy to return to pre-Covid-19 levels in the second quarter of 2022,” they note, compared to the previous forecast of returning in the fourth quarter of 2023.
Also attentive to the fiscal issue, UBS assesses that, on the one hand, the economy has been showing a recovery pattern in the shape of a “V”, with high-frequency data showing general activity closer to pre-pandemic levels, on the other . On the other hand, the drop in activity in the second quarter plus all the fiscal stimuli may generate a public deficit of around 15% of GDP and a gross debt of more than 95%.
“Currently, we expect GDP in 2020 to fall 5.5%, with the potential for a less severe decline. 2021, on the other hand, may have a limited recovery of 3% ”, assess the bank’s economists.
Therefore, economists will continue to monitor fiscal issues – on the eve, the government presented the proposed Budget 2021 – and also the most recent data on Brazilian activity. In addition, as Bradesco points out, the week will include the publication of license plates and vehicle production for August, which will also allow us to assess the growth rate of the current quarter.
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