Brazil's GDP likely shrank 1.5% in first quarter on coronavirus impact: Reuters poll

BUENOS AIRES (Reuters) - Brazil’s economy probably shrank 1.5% in the first quarter, hit by the initial shock from the coronavirus pandemic at the outset of what will almost certainly be an historic recession, a Reuters poll showed on Monday.

FILE PHOTO: A man wearing protective face mask, as a precautionary measure against coronavirus disease (COVID-19), calls for drivers to park in downtown Sao Paulo, Brazil, March 20, 2020. The banner reads “Parking - for half hour 9,99 reais (US $1.97)”. REUTERS/Amanda Perobelli/File Photo

If confirmed, the contraction in gross domestic product in the January-March quarter would be the worst in a three-month period in nearly half a decade, adding pressure on President Jair Bolsonaro to deal with the fallout from the health crisis in an economy that was already struggling.

The latest GDP data, scheduled for release at 9 a.m. local time (1200 GMT) on Friday, will likely show a 1.5% drop in the first quarter compared with the previous quarter, according to the median estimate of forecasts from 38 economists surveyed during the May 18-22 period.

Their views ranged from -0.9% to -10.0%, the latter a single estimate far from the next lowest in the poll at -3.4%. In annual terms, the median forecast pointed to a 0.4% fall, which would be the poorest reading since the fourth quarter of 2016.

The expected contraction stems from markedly lower consumer spending and private investment, while government expenditure and net trade will be a mild offset, based on economists’ answers to other questions in the poll.

The second quarter is expected to mark the worst part of a recession that is likely to be the deepest in Brazil’s modern history and last a year. Economists expect economic activity to plunge 12.7% in the April-June period in annual terms, the worst ever performance.

“Quarantine and social distancing measures had a major impact in retail sales and services, with declines of up to 30% in some sectors in April and May,” said Rafaela Vitoria, chief economist at Banco Inter.

In an indication that the government may be underestimating the scope of the economic pain, the survey predicted a 6.3% GDP contraction for 2020 - deeper than the official forecast of -4.7%. The economy will then recover in 2021, growing 3.5%.

Still, economists remain cautious. “As the curve of new COVID-19 cases in Brazil is showing very few signs of slowing, there is a downward bias in our forecasts for both years,” said Alexandre Lohmann, macro analyst at GO Associados.

Last week, Brazil surpassed Russia to become the country with the second-highest number of coronavirus cases after the United States. Bolsonaro has been fiercely criticized for his handling of the outbreak, which has led to the departure of two health ministers.

The government is spending an extra 344.6 billion reais ($62 billion) in order to support the economy, a move that could blow up the primary deficit to 675.7 billion reais, or 9.4% of GDP.

Of a total 21 economists who answered a different query, 14 were evenly split between seeing a “very low” risk and “low” risk that the recession would continue into 2021. Six said it was a “high” risk and another said “very high.”

“The bigger question remains how committed the president and Congress will be to structural reforms in face of the economic and social challenges posed by the pandemic,” said Felipe Sichel, a strategist at Banco Modal.

Reporting and polling by Gabriel Burin; additional polling by Jamie McGeever; Editing by Ross Finley and Paul Simao