Brazil’s GDP to Drop 10.1 Percent in 2020 in Worst-Case Scenario, Projects UBS

RIO DE JANEIRO, BRAZIL – (Reuters) Swiss banking giant UBS (investment banking company) has revised the estimate for the retraction of the Brazilian economy in 2020 to 5.5 percent, after anticipating a two percent drop earlier this month, but depending on the scenario analyzed, the drop could be even higher, as much as 10.1 percent.

In the first scenario, the economy drops 5.5 percent. In the second, it is 7.2 percent. And in the third scenario, the economy shrinks by two digits.

In the first scenario, the existing restrictions on social distancing remain in effect until mid-May, with activities returning to normal for the most part by late June.

In the second scenario, restrictions will only start to be lifted by late June, with normalization until the end of August.

In the third scenario, the coronavirus pandemic is not effectively controlled until mid-2021, with restrictions only partially removed.

However, economists Tony Volpon and Fabio Ramos, who signed this Tuesday’s report, considered that even outside scenario three, the economy could suffer a stronger-than-expected drop, impacted by political issues.

The experts highlight the risk of the pandemic leading to high levels of political uncertainty, with negative impacts on investor confidence, which could generate a permanently higher risk premium state in asset prices.

In this case, “we can see the result similar to scenario three even if the pandemic is under control,” Volpon and Ramos said.

In 2021, the UBS sees the economy growing by 6.5 percent (first scenario), by 8.3 percent (second scenario), and by 5.4 percent (third scenario).

Source: Reuters