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ECONOMY | 01-09-2020 10:59

Virus plunges Brazil into recession with record 9.7% drop

Brazil's economy, the biggest in the reion, contracted by a record 9.7% in the second quarter of 2020, plunging into recession.

Brazil's economy, the biggest in Latin America, contracted by a record 9.7 percent in the second quarter of 2020, plunging into recession as coronavirus lockdowns hit home, the official statistics agency said Tuesday.

Brazil has been hit hard by the pandemic, with the second-highest number of infections and deaths worldwide after the United States, and stay-at-home measures to contain the virus have taken a heavy toll.

"GDP is now at the same level as late 2009, at the height of the global financial crisis," the Brazilian Institute of Geography and Statistics (IBGE) said in a statement.

It was the biggest drop since the current system of records began in 1996, it said.

There were record contractions of 12.3 percent in the industrial sector and 9.7 percent in the services sector, which together account for 95 percent of the Brazilian economy, IBGE said.

"These results refer to the peak of social distancing, when many economic activities were partially or totally paralyzsed to fight the pandemic," IBGE national accounts coordinator Rebeca Palis said in the statement.

The contraction was worse than the 9.2 percent average forecast by 49 economists polled by business daily Valor Econômico.

.However, it was better than the 11.1 percent drop economists were predicting in May.

Brazil fared better in the second quarter than many other economies, including Britain (-20.4 percent), France (-13.8 percent), Mexico (-17.1 percent) and Chile (-13.4 percent).

"The country suffered one of the more modest downturns in Latin America," consulting firm Capital Economics said in a note.

"But with fiscal policy set to turn from a tailwind to a headwind, the pace of the recovery is likely to lose momentum."

Stimulus extended, but halved

Analysts say Brazil's improvement was largely thanks to the decision by President Jair Bolsonaro's administration to launch a massive stimulus program that has been paying 600 reals (US$110) a month to 66.4 million Brazilians hit hardest by lockdown measures.

That is nearly one-third of the population.

Bolsonaro, who faces pressure from deficit hawks to rein emergency spending back in, announced Tuesday the government would extend the measure for four more months, but halve the payout to 300 reals.

"The Brazilian fiscal package was brutal, it was absolutely enormous," Margarida Gutierrez, an economist at the Federal University of Rio de Janeiro, told AFP.

Brazil's economy shrank a revised 2.5 percent in the first quarter, as the impact of the pandemic began to hit, IBGE said.

Since then, Covid-19 has exploded in Brazil: the country has now registered more than 3.9 million infections and 121,000 deaths.

The economy was only just recovering from its longest recession in history, driven by the fallout of a massive corruption scandal centred on state-run oil giant Petrobras.

Reeling from the scandal, which felled a laundry list of top political leaders and business executives, the economy shrank 3.5 percent in 2015 and 3.3 percent in 2016.

Economists polled by the central bank are forecasting a contraction of 5.28 percent for the year in 2020.

– AFP

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