Central Bank forecasts 6.4% drop in the economy this year

The Central Bank (BC) forecasts a 6.4% drop in the economy this year, due to the effects of the pandemic of covid-19. In the Inflation Report (IR), released today (25), bc revises the projection for gross domestic product (GDP), the sum of all goods and services produced in the country, stability, expected in March, to the decrease of 6.4% this year. "The change in projection is essentially associated with the advance and duration of the pandemic of covid-19 in the national territory, with the consequent adoption, from the second half of March, of social isolation measures in the country. The magnitude of these two factors has significantly exceeded what was expected on the cutoff date of the last RI." According to bc, the projection for annual GDP considers that the decline in the second quarter will be the largest observed since 1996, beginning of the current System of Quarterly National Accounts. "This contraction is expected to be followed by a gradual recovery in the last two quarters of the year, reflecting a gradual and heterogeneous decrease in social distancing and its economic effects," says the report. As part of the supply, the expected growth of agriculture was reduced from 2.9% in the March report to 1.2%. "This reduction reflects smaller expansions in the surveys for the grain crop and, mainly, in the estimate for livestock performance, due to the impacts of the pandemic on domestic and external demand for proteins," the BC said. The forecast for the variation of the industrial sector went from a fall of 0.5% to an even greater retraction: - 8.5%, "with a prospect of retreat in all activities due to the effects of the outbreak of covid-19 greater than previously anticipated". The projection for the performance of the manufacturing industry went from -1.3% to -12.8%, "motivated by a greater decrease in final demand, mainly for durable consumer goods and capital, in addition to the reduction in supply resulting from social distancing measures". The estimated variation for the production of the extractive industry fell from 2.4% to stability, "in the face of expectation of lower demand for iron ore and oil, in a scenario of greater global slowdown". The construction should show a 6.7% decrease, compared to the projection of a 0.5% decrease made in March, "reflecting behavior of greater caution of families and entrepreneurs in the sector, in addition to a decrease in the pace of some works due to the need to adopt special protocols to prevent contagion by the new coronavirus". Bc also estimates a 5.3% drop in the trade and services sector in 2020, compared to stability projected in March. The BC highlights the revisions in sectors most affected by mobility restriction measures: trade from -0.7% to -10.8%; transport, storage and mail, from -1.2% to -13.4%; and other services – which includes activities such as accommodation, out-of-home food and artistic activities from -1.1% to -9.4%. The BC projects "a significant contraction in household consumption, despite the magnitude of government income transfer measures." "In relation to the last IR, the projection was revised from 0.8% to a 7.4% decrease due to the greater than previously anticipated impacts of the pandemic on consumer behavior and the evolution of the mass of labor income, in addition to the effects of social distancing measures and restrictions on mobility," he added. According to bc, the "prospect of more pronounced effects of the pandemic on economic activity and high uncertainties regarding the resumption process should lead to postponement of investment decisions". Thus, the forecast for the annual performance of Gross Fixed Capital Formation (FBCF) changed from -1.1% to -13.8%. The projection for government consumption remained unchanged (0.2%). "Despite the estimated significant loss of revenue, the government should preserve essential spending in times of crisis," the B.C. said. Exports and imports of goods and services in 2020 should vary, in this order, -8.1% and -11.1%, compared to respective projections of 0.9% and 0.6% presented in the previous RI. "The reduction in the projection for exports results from the expectation of lower external demand, especially for manufactured goods, due to the reassessment of global economic activity. The decrease in the estimate for imports reflects the reduction in growth projections of domestic activity, especially the manufacturing industry and the FBCF, with the consequent decrease in purchases of inputs and machinery and equipment, as well as the prospect of reducing household consumption," the BC said.