April 27, 2020 / 4:02 PM / in a month

UPDATE 1-Brazil economic outlook darkens as Citi predicts 'worst annual contraction ever'

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By Jamie McGeever

BRASILIA, April 27 (Reuters) - The outlook for Brazil’s economy continues to deteriorate, a series of surveys on Monday showed, as economists at global bank Citi slashed its 2020 forecast and predicted “the worst annual contraction ever” this year.

Citing more widespread and lasting damage from the COVID-19 crisis than previously thought, Citi’s economists said gross domestic product in Latin America’s largest economy will shrink 4.5% this year, versus an earlier forecast of a 1.7% decline.

That would be deeper than the 4.25% contraction in 1981, the biggest annual fall in output going back to at least 1962, according to central bank data. The World Bank and International Monetary Fund are penciling in a contraction of 5% or more.

“We now expect a GDP drop of 4.5% in 2020, with the unemployment rate peaking close to 17% in the (third quarter),” they wrote in a note on Monday.

“The preliminary information that encompasses the shutdown period revealed that the current GDP drop will likely surpass the one seen in the 2008/09 Great Financial Crisis,” they wrote.

Inflation this year will come in at 2.40%, below the lower band of the central bank’s target range, prompting a further 100 basis points of interest rate cuts over the next two months, they added.

Meanwhile, the average 2020 growth forecast of more than 100 financial institutions in the central bank’s weekly “FOCUS” survey on Monday showed the eleventh consecutive decline to -3.3% this year from -3.0% last week.

Also on Monday surveys carried out by the Getulio Vargas Foundation (FGV) showed that consumer and business confidence fell to the lowest on record in April, with the outlook suggesting no sign of improvement in the coming months.

The FGV’s consumer confidence index fell 22.0 points to 58.2, the lowest since the index was launched in 2005, and its business confidence index posted a record fall of 26.9 points in April to a new low of 61.2.

“Pessimism surrounding the coming months is homogeneous across income groups. It is difficult to see a significant improvement in the coming months, given the high level of economic and political uncertainty,” said consumer confidence survey coordinator Viviane Seda Bittencourt.

Reporting by Jamie McGeever Editing by Chizu Nomiyama and Lisa Shumaker

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