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Brazil's GDP probably plunged 9.4% in the 2nd quarter amid the spread of coronavirus

Posted by Marina

Brazil's economy probably 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 started to stir again after President Jair Bolsonaro announced fiscal spending to deal with the aftermath of Covid-19, but optimism has been shaken by fears that this approach could harm the austerity agenda if held for too long.

Brazil has registered more than 3.6 million cases of coronavirus since the beginning of the pandemic, the worst outbreak in the world outside the United States.

The Gross Domestic Product (GDP) data, which will be released on September 1, should start a heated debate about the extent of a vast spending initiative that is quickly eroding the position of the Minister of Economy, Paulo Guedes.

The growing budget deficit has fueled concerns among economists, whose warnings are increasing pressure on a government that is already facing criticism for its approach to the health crisis, which already costs almost 115,000 lives.

GDP probably fell 9.4% in the period from April to June compared to the previous quarter, after a drop of 1.5% in the first quarter, according to the median estimates of 33 economists consulted between 17 and 21 August . Forecasts ranged from a 7.5% decline to a 13.6% decline.

Almost all respondents who answered separate questions about the performance of the GDP components cited spending and private investment as factors that weighed the economy in the second quarter, with family income weakened by rising unemployment and companies holding back capital spending.

Reflecting a nascent recovery in the face of the initial paralysis, the estimated size of the economy's decline in annual terms was reduced for the second time, with analysts expecting a 10.7% contraction, compared to a projected 12.7% loss in May.

"The solutions provided by several governments prevented the decline from being even more pronounced," analysts from MB Associados wrote in a report last week. "The various income support programs have helped to maintain a certain pattern of consumption, especially among the lower income classes."

In addition to the increase in public spending in the second quarter, analysts had expected to see the impact of increased Brazilian trade, which was driven by a large devaluation of the real in the midst of the pandemic.

"The commoditized sectors, such as agriculture and mining, will have very reasonable results and some segments that at first seemed to have a stronger fall, such as construction and investment, will have smaller falls than imagined", completed MB Associados.

However, the deterioration of public accounts and their political impact is beginning to affect local markets again.

Source: Notícias Agrícolas