Brazil: GDP contracts at fastest pace in nearly five years in Q1
The economy shrank in the first quarter of 2020 as the shock from the Covid-19 pandemic and associated social distancing measures constrained activity. Seasonally-adjusted GDP fell 1.5% quarter-on-quarter in Q1, contrasting the revised 0.4% expansion in Q4 2019 (previously reported: +0.5% quarter-on-quarter). The result was in line with market expectations and marked the steepest contraction since Q2 2015. Moreover, on an annual basis GDP fell 0.3% in Q1, contrasting Q4’s 1.7% rise.
The first quarter’s downturn was largely driven by a marked contraction in household consumption, which fell 2.0% and contrasted Q4’s increase of 0.4%, amid rising unemployment and a sharp fall in retail sales in the final month of the quarter. Moreover, public expenditure growth slowed to 0.2% in Q1 from 0.4% in Q4 2019, as public finances continued to be tight. On the other hand, fixed investment swung to a 3.1% expansion in Q1 from a 2.7% contraction in Q4 2019.
In the external sector, exports of goods and services fell 0.9% in Q1, contrasting the 2.3% increase in the final quarter of 2019, as the pandemic hammered demand from key trading partner China. Conversely, imports rebounded in Q1, expanding 2.8% and contrasting the 3.3% contraction logged in Q4 2019.
Looking ahead, GDP is expected to contract this year as the Covid-19 pandemic deals a heavy blow to the economy. Containment measures are seen crippling private consumption and investment, while feeble global demand will depress exports. Although fiscal and monetary stimulus should provide a cushion, the extent of the shock and rising political tensions pose further downside risks.
Commenting on the outlook, Alberto Ramos, Economist at Goldman Sachs, noted:
“Despite having no ex-ante fiscal space, the fiscal response to the pandemic is likely to ultimately exceed 5% GDP, as some of the already-announced measures are likely to be broadened and extended. Overall, we anticipate a sizeable fiscal expansion, but still short of what would be required to offset the expected decline in private disposable income. Furthermore, we expect economic, policy and political uncertainty to remain high, which is likely to compound the economic and social burden of the pandemic and undermine the recovery.”