Brazilian economy shrank 4% in 2020 -GDP monitor

RIO DE JANEIRO, BRAZIL – The FGV’s GDP Monitor shows that economic activity shrank by 4% in 2020. The data was released today, February 19th, by the Brazilian Institute of Economics of the Getúlio Vargas Foundation (Ibre/FGV).

In terms of production, among the three major sectors (agriculture and livestock, industry and services), only agriculture and livestock grew in the year (2%). Meanwhile, in terms of demand, all components shrank, particularly household consumption, with a 5.2% drop in the year.

According to the FGV-GDP Monitor coordinator, Claudio Considera, the marked 4% drop in the economy in 2020 consolidates widespread retractions in several economic activities, as a result of the covid-19 pandemic.

According to him, although the economy picked up at the end of the year, with 3.4% growth in the fourth quarter and 1% in December, when compared with the immediately preceding periods and with equal periods in 2019, the results were not enough to offset the expressive GDP loss suffered, mainly in the second quarter.

“For 2021, challenges prove to be great based on this scenario, considering that due to the slow growth in 2017-2019, the economy was able to recover the 2014-2016 recession losses. With the adverse shock faced in 2020, which has not yet been fully eliminated, the 2014 results, the peak of the time series, look increasingly distant from being achieved,” he said in a statement.

In monetary terms, it is estimated that the 2020 GDP has reached R$7 trillion, 434 billion and 248 million in current figures.

The 2020 GDP result interrupted the growth trajectory that stretched over three years and returned to the 2016 level. At constant 2020 prices, the 2020 GDP, although slightly higher than 2016, is still lower than in the 2017-2019 period. In 2020 values, GDP per capita equals R$35,108, the lowest since 2008.

Meanwhile, the investment rate of the economy stood at 16.1% in 2020, the highest since 2015 (17.3%).

In the quarterly analysis, the GDP presented growth of 3.4% in the fourth quarter in the seasonal adjustment, compared to the third quarter, showing economic activity acceleration at the end of the year. In relation to the fourth quarter in 2019, GDP showed a 0.8% retraction.

In the monthly analysis, GDP grew by 1% in December, compared to November. In the year-on-year comparison, the December GDP result grew by 1.4%; the first positive result after nine straight months dropping.

According to the survey, household consumption shrank by 5.2% in 2020, compared to 2019. This component, one of the main contributors to the economy’s growth after the 2014-2016 recession, showed an expressive retreat in 2020, with the spread of the covid-19 pandemic.

Services consumption shrank the most in 2020, mainly due to the contraction in consumption of housing and food services, private healthcare, and general household services.

In the monthly interannual analysis, consumption of both nondurable and durable goods grew in December 2020. The strong 10.2% growth in durable goods consumption was due to increased consumption of all segments that make up this type of goods.

Consumption of nondurable goods grew mainly due to the consumption of food and pharmaceutical products, a recurring pattern in 2020. The largest drop was still in services consumption, mainly due to shrinkage in the consumption of housing, food and other services provided to families, all of which depend on social interaction, hampered by the pandemic.

The Gross Fixed Capital Formation (GFCF), comprising investments, retreated 2.9% in 2020, compared to 2019. The machinery and equipment component, which made the largest contribution to GFCF growth throughout 2018 and 2019, was the main driver of retraction in 2020. The machinery and equipment segment that most influenced this significant pullback was automobiles, vans and SUVs.

In the year-on-year comparison, GFCF grew by 14.5% in December 2020, mainly due to the 36.3% growth in the machinery and equipment component. This increase was spread among several segments, but trucks and buses, tractors and other agricultural equipment, and machinery and mechanical equipment in general were the most positive.

Exports shrank 1.9% in 2020, compared to 2019. The export segments that shrank in the year were intermediate goods, services, and capital goods; particularly the latter, which contracted 33.5% in the year. In contrast, the segments that showed positive performance were agricultural products, mineral extraction products and consumer goods.

Imports shrank by 10.3% in 2020 compared to 2019. With the exception of imports of agricultural products, which grew 2.3% in the period, all other segments shrank in 2020. The import of services was the main contributor to the drop in imports with a 28.4% decline in the year.

Although only two import segments grew in December, total imports increased by 10.3% year-on-year. Despite the declines in other components, the significant growth of intermediate goods (39.7%) and capital goods (34.8%) boosted total imports.