Brazil's economy likely plunged 9.4% during the second quarter under the impact of the country's coronavirus outbreak, its worst quarterly result ever, a Reuters poll showed.
Economic activity began to pick up again after President Jair Bolsonaro announced fiscal spending to deal with the fallout from Covid-19, but optimism was shaken by fears that this approach could undermine the austerity agenda if maintained for too long.
Brazil has recorded more than 3.6 million coronavirus cases since the start of the pandemic, the world's worst outbreak outside the United States.
Gross Domestic Product (GDP) data, which will be released on September 1, is expected to trigger a fierce debate over the extent of a vast spending initiative that is rapidly eroding the position of Economy Minister Paulo Guedes.
The growing budget deficit has fueled concerns among economists, whose warnings are increasing pressure on a government already facing criticism for its approach to the health crisis, which has already claimed almost 115,000 lives.
GDP probably fell by 9.4% in the April-June period compared to the previous quarter, after a drop of 1.5% in the first quarter, according to the median estimates of 33 economists surveyed between August 17 and 21. Forecasts ranged from a drop of 7.5% to a decline of 13.6%.
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Nearly all respondents who answered separate questions about the performance of GDP components cited private spending and investment as factors weighing on the economy in the second quarter, with household incomes weakened by rising unemployment and businesses holding back on capital spending.
Reflecting a nascent recovery from the initial paralysis, the estimated size of the economy's drop in annual terms was reduced for the second time, with analysts expecting a contraction of 10.7%, compared to a projected loss of 12.7% in May.
“The solutions provided by several governments prevented the decline from being even more pronounced,” wrote analysts at MB Associados in a report last week. “The various income assistance programs helped maintain a certain consumption pattern, especially among the lower income classes.”
In addition to the increase in public spending in the second quarter, analysts expected to see an impact from the increase in Brazilian trade, which was driven by a large devaluation of the real amid the pandemic.
“The commoditized sectors, such as agriculture and mineral extraction, will have very reasonable results and some segments that at first seemed like they would have a stronger drop, such as construction and investment, will have smaller drops than imagined”, added MB Associados.
However, the deterioration of public accounts and their political impact are starting to affect local markets again.
Source: Notícias Agrícolas
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