By Richard Mann
RIO DE JANEIRO, BRAZIL – The downturn in projections for the economy is not limited to this year. Due to the weaknesses shown by business activity indicators, banks and consultancies are already reducing their forecasts for the year 2020 Gross Domestic Product (GDP).
For the time being, most estimates point to a growth rate close to two percent, although there are some below that level.
Forecasts for a weak economy next year are evident every week with the release of the Central Bank’s Focus report, which collects forecasts from several analysts of various economic indicators. The latest GDP projection for 2020 is 2.2 percent. Its best moment, in early March, was 2.8 percent.
Several factors explain the deterioration in next year’s projections:
- This year’s low growth is leaving a weak statistical legacy for 2020;
- With the escalating trade war, the world economy should show a modest performance, affecting Brazil;
- The recession has knocked down Brazil’s potential GDP, that is, the economy’s capacity to grow without generating imbalances such as rising inflation;
- Without cash resources, the government has no leeway to stimulate the economy.
The Tendências consultancy reports that, due to the slow growth forecast for this year — only 0.9 percent — the statistical legacy for 2020 will be 0.6 percent, which means that should the Brazilian economy remain stable in all quarters next year, there is a contracted advance of the Gross Domestic Product (GDP) of only 0.6 percent.
The Brazilian economy has been disappointing throughout 2019. Between January and March, GDP shrank 0.2 percent, and the second quarter’s first indicators are still showing a weakening of activity — the growth expected by banks and consultancies for the period from May to June is between 0.3 percent and 0.4 percent.
In addition to all domestic difficulties, Brazil should be affected next year by the slowdown in the international economy. The activity of developed countries has shown signs of deceleration, which should hinder global trade, weakened by the trade war led by the United States.
With this year’s economic downturn and the international slowdown, Banco Itaú already projects growth of only 1.7 percent for 2020.
Although the business activity figures are disappointing, analysts estimate that the economy should accelerate slightly in the second half of this year, should the Social Security and Pension reform be approved. It is deemed crucial for settling public accounts and thus ensuring investors’ confidence in Brazil’s solvency.
However, the expected acceleration will not bring about dynamic performance, mainly because the recent economic downturn has knocked down the country’s potential GDP and, with the fiscal crisis, there is little room for the government to work to stimulate the economy. Economists expect average growth to rise to a level close to 0.5 percent in the coming quarters.