JPMorgan Reduces Brazil’s GDP Growth Projection in 2020 from 2.0 to 1.9 Percent

RIO DE JANEIRO, BRAZIL – JPMorgan has cut this year’s growth projection for Brazil, with the outlook for China’s economy worsening due to the rapid spread of the coronavirus epidemic.

The projected increase in Brazil’s Gross Domestic Product (GDP) in 2020 dropped from 2.0 to 1.9 percent. For 2021, the American bank raised its estimate from 2.2 to 2.4 percent.

The slower economic rebound and the drop in international commodity prices triggered by a weaker Chinese economy should reduce pressure on inflation. As a result, the bank also cut its 2020 IPCA inflation rate estimates from 3.7 to 3.4 percent, mainly influenced by the better prices expected for food and gasoline.

JPMorgan notes that nearly 30 percent of Brazilian exports go to China, thus the negative impact of the Asian country’s loss of momentum in economic activity. Yesterday, the bank announced a cut in its projection for Chinese GDP growth in the first quarter, from 4.9 to 1.0 percent, due to the outbreak of coronavirus in that country. The estimate for the whole of 2020 dropped from 5.8 to 5.4 percent.

Given the significant trade flow between the two countries, the bank estimates that for each percentage point decline in China’s growth, Brazil’s GDP expansion is reduced by 0.2 to 0.3 percentage points, typically with a three month delay between events in China and the impact here. But in the case of the coronavirus, given its abrupt effects in the Asian country, the impact on the Brazilian economy will be felt as early as this quarter.

The negative impact of the coronavirus should be concentrated in the first half of the year. As a result, JP cut Brazil’s GDP growth estimate for the first half of the year by 0.6 percent. It is expected that in the second half of the year, business activity will pick up. Therefore, the bank raised the GDP estimate for the second half of the year by 0.5 percent. However, this improvement will not be enough to avert a reduction in the growth estimate for the whole of 2020, the bank notes in a report.