Brazil government keeps 2020 GDP forecast at a record 4.7% fall

BRASILIA (Reuters) - Brazil’s Economy Ministry on Tuesday kept its forecast for a record 4.7% fall in gross domestic product this year, predicting that the recovery already underway from the depths of the pandemic-fueled crisis will accelerate as the year goes on.

FILE PHOTO: Street vendors sell their goods at a closed commerce area in Rio de Janeiro's downtown, Brazil September 1, 2020. REUTERS/Ricardo Moraes

The ministry said it expects growth in the third quarter to be led by industry, agriculture and trade, which will help drive an overall GDP expansion of 7.3% from the preceding three-month period.

Brazil’s economy shrank by a record 9.7% in the second quarter, figures earlier this month showed, a bigger fall than economists had expected.

The unchanged 2020 outlook came as a slight surprise, after Waldery Rodrigues, special secretary to the ministry, had indicated earlier this month that the forecast could be revised up.

Still, a contraction of 4.7% is smaller than the average forecast in the latest weekly central bank survey of economists, of around 5.1%, and far less gloomy than the International Monetary Fund’s projection of a 9.1% crash.

The ministry noted that Brazil’s dominant services sector, which accounts for around 70% of all economic activity, has been slow to recover from the pandemic shock, but will start to show a “more vigorous” performance in the fourth quarter.

“According to our projections, the services sector will be stronger from October onwards, and will lead (the economy’s performance) in the fourth quarter,” economic policy secretary Adolfo Sachsida told reporters in an online press conference on Tuesday.

The ministry also maintained its 2021 GDP growth forecast of 3.2%. While the outlook is still subject to a high degree of uncertainty due to the COVID-19 crisis, Sachsida said next year’s projection was still on the conservative side.

Quick and strong government action earlier this year to support the economy helped mitigate the pandemic’s affect. But the “only” way Brazilians will enjoy sustained economic well-being and the benefits of increased productivity is through “structural reforms and fiscal consolidation.”

The ministry also raised this year’s inflation forecast to 1.83% from 1.6% and lowered next year’s to 2.94% from 3.24%. Both would still be well below the central bank’s official goals of 4.0% and 3.75%, respectively.

Sachsida said the recent rise in food prices is temporary and does not mark the start of an inflationary phenomenon, hailing the central bank’s efforts in keeping inflation low.

Reporting by Jamie McGeever; Additional reporting by Marcela Ayres; Editing by Chizu Nomiyama, Jonathan Oatis and Marguerita Choy