Brazil cuts growth estimates amid coronavirus fears

Brazil cuts growth estimates amid coronavirus fears

Anaemic forecast poses challenge for Jair Bolsonaro and his economy minister

Brazil’s economy expanded just 1.1 per cent last year, dashing hopes of a quick economic revival under President Jair Bolsonaro.

The official data, released on Wednesday, come amid growing fears about the impact of the coronavirus on Latin America’s largest economy. Economists thisweek cut growth estimates for 2020 to 2.1 per cent from 2.3 per cent just a monthago as concerns grow that the spread of the virus will hit the nation’s crucial export sector.

“This shock occurs at a time when the Brazilian economy is still fragile,” said ZeinaLatif, an economist.

Many hoped the inauguration early last year of Mr Bolsonaro on a pro-market platform would revive the fortunes of Brazil’s flagging economy, which hasstruggled to grow since a recession that ended in 2017.

But progress has been slow, with growth buffeted by the trade war between the USand China, economic turmoil in neigh bouring Argentina and growing concernamong investors and businesses about Mr Bolsonaro’s confrontational governing style. “The economic and social outlook in Brazil has been very uncertain. In a stress fulenvironment, people are more cautious and companies are also more cautiouswhen investing,” said Thiago Xavier, analyst with Tendencias, a consultancy. “There are several sources of uncertainty. One of them is the tense relations hipbe tween the executive and the legislative branches.”

According to official data, the economy grew 0.5 per cent in the final quarter of last year, down from 0.6 per cent in the third quarter.

Now concern is already shifting to how the spread of the coronavirus will affect growth this year. Brazil at present has two confirmed cases of coronavirus, with another 400 suspected.

“Our expectation at the end of 2019 was that real GDP, following three years of very modest growth, would accelerate above the 2 per cent threshold in 2020,” said Alberto Ramos, an economist at Goldman Sachs. “[However], the ongoing coronavirus outbreak is generating increasing headwinds to activity in Brazil. Firstand foremost, Brazil remains quite exposed to lower commodity prices.”

Mr Ramos cut the country’s growth forecast to 1.5 per cent for the year.

The developments pose challenges not only for Mr Bolsonaro, but also for Paulo Guedes, the country’s economy minister, who has been charged by his boss with delivering growth of at least 2 per cent this year, according to government insiders.

Mr Guedes is betting on a mix of fiscal rectitude and economic reforms to boost the economy.

“This level of growth is below what is desired and needed for a country with this level of inequality. The administration is betting heavily on fiscal adjustment as a panacea that will restore confidence and bring economic growth. This has not worked anywhere in the world,” said Antônio Lacerda, president of the Federal Economic Council, a public policy group.

Economists believe the Brazilian central bank will follow the US Federal Reserve with an emergency interest rate cut, most likely of 25 basis points, at its next meeting in two weeks.

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