Brazil Expected to Record Fourth-Highest GDP Drop in Latin America, Says ECLAC

RIO DE JANEIRO, BRAZIL – Brazil is expected to record the fourth-highest drop in Gross Domestic Product (GDP) in Latin America and the Caribbean in 2020, according to new projections released by the Economic Commission for the region (ECLAC) on Tuesday, July 28th. In the new estimates released by the organization, the economic slump caused by Covid-19 is expected to be greater in the area.

The reduction in Brazilian GDP in 2020 should reach 9.2 percent. Expected to suffer greater contractions are Argentina (-10.5 percent), Peru (-13 percent), and Venezuela (-26 percent). The lowest drop will be in Paraguay (-3 percent). Overall, the region’s GDP is expected to shrink 9.1 percent. The preceding estimate, released in April, was for a 5.3 percent decline this year. The index will almost double the global projection, which is expected to be 5.2 percent.

The ECLAC also expects unemployment and poverty to rise. The unemployment rate will affect 44 million people, representing 13.5 percent of the region’s populace. The result could mark an increase of 5.4 percentage points compared to 2019, when it stood at 8.1 percent.

Poverty should rise from 30.2 to 37.3 percent between last year and 2020, while extreme poverty should grow from 11 to 15.5 percent over the same period. This is a very disturbing figure, as these people may not be able to meet their basic food requirements.

ECLAC projects that the number of people in poverty will rise from 19.2 to 26.9 percent between 2019 and 2020, and that of extreme poverty from 14.3 to 16.8 percent in Brazil. The 7.7 p.p. increase in poverty is expected to be the third in the region, behind Peru (9.3 p.p.) and Argentina (10.8 p.p.).

As for the Gini index fluctuation estimates (used to measure social inequality), Brazil was included in the second group with a potential increase in inequality (from five to 5.9 percent), along with Chile, El Salvador, and Mexico. Above this level (six percent or higher) are Peru, Argentina, and Ecuador.

“The vulnerability of 80 percent of the population is highlighted, with a sharp deterioration in the middle classes. Over 33 million people who were among the middle classes would drop into the lower classes,” said Alicia Bárcena, the ECLAC’s executive secretary.

To react to this crisis scenario in the region, the ECLAC proposed a range of measures. The executive secretary advocated “expansive” and “time-sustaining” economic policies. “There is complementarity between macroeconomic, social, and productive policies, which must be conducted in integration,” she said.

ECLAC advocates a basic emergency income, which must be sustained over the coming months. Several countries have made use of this resource, such as the emergency aid in Brazil. The commission proposes a basic emergency aid equivalent to the poverty line (US$143) for six months, at a cost of two percent of GDP.

In addition, the organization argues that governments should grant additional aid to fight hunger to the population in extreme poverty, equivalent to 70 percent of the regional extreme poverty line (US$ 67 per month), which would require an expenditure of US$27 billion or 0.52 percent of regional GDP. While these actions are sporadic, ECLAC believes that these social policies must be made universal by governments.

In line with combining social and productive programs, a further strategy should be the implementation of subsidies to micro and small businesses, with longer financing terms, rather than a mere few months.

Alícia Bárcena stressed that in order to implement these measures, Latin American and Caribbean countries must employ “expansive fiscal policies”. “This is going to be a structural rather than a cyclical expense,” the executive secretary said.

Another form of funding these programs involves obtaining financing sources. To this end, the ECLAC representative advocated coordinated action by governments to obtain favorable borrowing conditions. “We are in a middle-income region. There are favorable conditions for low-income countries, but not middle-income countries,” she explained.

Source: Agência Brasil