Brazil’s economy shrank in the second quarter by the most on record as anti-coronavirus lockdown measures slammed activity in almost every sector, dragging Latin America’s largest economy back to the size it was in 2009.
The pandemic triggered a 9.7% fall in gross domestic product from the prior quarter, government statistics agency IBGE said on Tuesday, and an 11.4% decline compared with the same period last year.
The magnitude of the slump in activity across the economy in the second quarter was huge: industry fell 12.3%, services 9.7%, fixed investment 15.4%, household consumption 12.5% and government spending 8.8%.
Household consumption, which accounts for two-thirds of all economic activity in Brazil, was a particularly heavy drag, IBGE said. Only agriculture expanded in the quarter, by 0.4%.
Brazil’s economy is now 15% smaller than it was at its peak in 2014. Carlos Kawall, director at ASA Investments and a former treasury secretary, said Brazil’s economy is unlikely to grow back to where it was just last year until 2023.
“It’s a horrible period for the economy. From the standpoint of the economy, social implications, and unemployment, it has been a disaster,” he said, revising downward his 2021 growth forecast to 2.1% from 2.7% due to uncertainty about the labor market and consumption outlook.
The economy ministry was more upbeat, noting that many of Brazil’s emerging market peers posted larger GDP contractions in the second quarter and that the outlook for this year has been brightening in recent weeks.
Economy Minister Paulo Guedes said the Q2 figures were a “distant sound, the sound of the pandemic’s impact back then,” and that the economy has begun a “V-shaped” recovery.
But economists at Goldman Sachs and Citigroup cut their 2020 GDP forecasts to -5.4% form -5.0%, and to -6.5% from -6.0%, respectively.
The government’s current forecast is for a 4.7% contraction this year, which would still be the largest annual fall in records dating back to 1900. The average forecast in a weekly central bank survey of economists is for a 5.3% decline.
The value of Brazil’s GDP at current prices was 1.65 trillion reais (US$ 306 billion) in the second quarter, IBGE said. IBGE also revised the January-March figures to a 2.5% fall in GDP from the initial estimate of a 1.5% decline.