March 11, 2020 / 4:12 PM / a month ago

UPDATE 1-Brazil cuts 2020 GDP forecast to 2.1%, doubles down on fiscal discipline

(Adds detail, comment)

By Marcela Ayres and Jamie McGeever

BRASILIA, March 11 (Reuters) - Brazil’s government lowered its 2020 GDP growth forecast on Wednesday while doubling down on its strict fiscal discipline and orthodox economic reform agenda as the best way to navigate the increasingly challenging economic environment.

With governments around the world weighing up stimulus packages to mitigate the economic impact of coronavirus, and now the market impact of the recent oil price crash, Brazil insisted it cannot and will not turn on the fiscal taps.

The economy ministry cut its 2020 growth forecast to 2.1% from 2.4% previously, in line with officials’ recent guidance, above the politically-sensitive 2.0% threshold and far more optimistic than several private sector revisions of late.

It also said it expects the economy to expand by 0.2% in the first quarter of this year, which would mark a continued deceleration from 0.6% in the third quarter of last year and 0.5% in the fourth quarter.

“The international picture has proved to be more challenging in early 2020. The effects of COVID-19 on China subsequently spread to other countries, negatively impacting GDP growth estimates, especially for emerging countries,” the ministry said in its report.

“As a consequence, commodity prices and terms of trade have deteriorated,” it said.

The government also lowered its 2020 inflation outlook to 3.12% from 3.62%, and maintained its 2021, 2022, 2023 GDP growth forecasts at 2.5%.

Economy ministry officials said the recent plunge in oil prices will not be factored into this year’s new growth forecasts or budget plans, which are based on an average price of $52.70 a barrel.

Speaking to reporters in Brasilia, the officials said the government will not relax its fiscal rules, such as lowering the spending ceiling cap. Controlling expenditures reduces Brazil’s risk premia, lowers interest payments and instills confidence in credit ratings agencies and international investors, they said.

Waldery Rodrigues, special secretary to the economy ministry, said the government’s “zeal” for fiscal discipline has paid off in the short term, but there can be no let up.

Earlier, Economy Minister Paulo Guedes urged both Senate and lower house leaders to speed up the government’s economic reform agenda, also insisting it was the best response to the worsening crisis. (Reporting by Marcela Ayres and Jamie McGeever Writing by Jamie McGeever Editing by Chizu Nomiyama and Tom Brown)

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