Brazil economy to shrink by 5% this year, says World Bank

BRASILIA, April 13 (Reuters) - Brazil’s economy will shrink this year by 5.0% due to the direct and indirect economic impact of the coronavirus pandemic, according to The World Bank, which would mark the country’s biggest crash in at least half a century.

In its semi-annual report for the region “The Economy In The Time Of Covid-19” published on Sunday, The World Bank said Brazil faces three major shocks: weak global demand, low oil prices, and the economic disruption from domestic virus-containment measures.

“These shocks will reduce private consumption and may impact labor productivity, while unemployment is expected to rise. The global and domestic demand shock (will prompt) a significant drop in investment,” the report said.

The outlook for a 5.0% drop in gross domestic product this year puts The World Bank at the gloomier end of the forecast spectrum. It is more bearish than most global and local financial institutions, and far more pessimistic than the government and central bank who both still officially expect zero growth this year.

According to World Bank data going back to 1961, Brazil’s biggest annual GDP decline was the 4.4% contraction in 1981. And despite an increasingly strong policy response from the central bank and government to mitigate the damage, downside economic risks remain “significant”, The World Bank said.

The Brazilian central bank’s latest weekly ‘FOCUS’ survey of around 100 economists on Monday showed the average GDP growth forecast for this year is now -2%, compared with -1.2% a week ago.

Inflation is expected to slow to 2.5% this year, down from 2.7% as week ago and even further below the central bank’s official goal of 4.00%, giving it ample room to cut interest rates, economists say. (Reporting by Jamie McGeever Editing by Chizu Nomiyama)