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The IMF admits that Brazil’s economy is doing better than expected, but warns of debt and a second wave of Covid-19
“The economy is projected to contract by 5.8% in 2020, followed by a partial recovery to 2.8% in 2021.” the IMF said in its annual report
Brazil’s economy is expected to contract 5.8% in 2020, the International Monetary Fund said on Monday, revising an earlier forecast but warning that the country was facing? Exceptionally tall? risks.
“The economy is projected to contract by 5.8% in 2020, followed by a partial recovery to 2.8% in 2021.” said the IMF in its annual report on the largest economy in Latin America.
The report released Monday revised up the more pessimistic forecast of a 9.1% contraction in June.
He praised the right-wing government of President Jair Bolsonaro for its “speed and forcefulness” response to the economic crisis caused by the coronavirus pandemic.
The government increased health spending, boosted financial support for state governments, extended state-backed credit lines, and introduced job retention schemes, which helped protect formal jobs during the shutdown.
? The strong policy response prevented a deeper economic recession, stabilized financial markets, and cushioned the effects of the pandemic on the poor and vulnerable.
However, he warned that, given a sharp increase in the primary fiscal deficit, gross public debt is expected to reach around 100% of GDP in 2020 and remain high in the medium term.
“The risks are exceptionally high and multifaceted.” the Fund warned, “including a second wave of the pandemic, the long-term scars of a prolonged recession and vulnerability to confidence shocks given Brazil’s high level of public debt.”
The South American giant of 212 million people has been hit hard by the new coronavirus, with more than 145,000 dead, the second-highest death toll worldwide after the United States.
The IMF recommended that the government “be prepared to provide additional fiscal support” if health, economic and social conditions deteriorate. Almost 12 million jobs were lost due to the crisis between February and July, of which more than seven million were in the informal sector.
The unemployment rate continues to rise, reaching 13.8% in the May-July quarter, although other indicators such as industrial production showed improvements in August compared to the previous month, he said.
Consumer spending is picking up as well, though that’s largely due to the 600-real (US $ 110) monthly emergency stimulus checks the government has been paying to around 60 million Brazilians, about a third of the population.
The payments were cut in half this month and will expire at the end of the year.
“While some recent indicators are encouraging and authorities expect a strong rebound next year, it may take time for employment, income and poverty to return to pre-COVID levels.” said the IMF report.
He urged the government to press ahead with structural reforms, “to create jobs and lift the poor above the poverty line, to make the Brazilian economy more competitive, open to business and trade, and attractive to the economy. investment”.
Despite the risks, the Fund stressed that the country has “considerable.” international reserves, ?? a resilient banking system ?? and a low proportion of public debt in foreign currency.
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