Friday , September 20 2019
Home / brazil / With deteriorating activity, economists already cut the GDP forecast for 2020 economy

With deteriorating activity, economists already cut the GDP forecast for 2020 economy

The deterioration of projections for the economy is not limited to this year alone. Along with the weakness in activity indicators, banks and consulting companies are already beginning to cut forecasts for achieving gross domestic product (GDP) by 2020. For the time being, most estimates indicate a growth of about 2%, though far below this threshold.

The expectation of a weak economy next year is visible every week by publishing the Fokus Central Bank report, which is forecast by several analysts for various indicators of the economy. The latest GDP projection for 2020 is 2.2%. At the best, at the beginning of March, the forecasts were 2.8%.

There are many factors that explain the deterioration of projections for the next year:

  • This year's low growth weak statistical heritage for 2020;
  • With the escalation of a commercial war, the world economy should work modestly, affecting Brazil;
  • The crisis has reversed Brazil's potential GDPie the ability of the economy to grow without creating imbalances such as rising inflation;
  • No cash the government has no room for maneuver to stimulate the economy.

GDP has been reduced

Forecasts for economic activity in 2020 are worsening; data in%

Source: Focus Research, Central Bank

In Tendências's accounts, with a low growth prognosis for this year – just 0.9% – the statistical heritage for 2020 will be 0.6%, which means that if the Brazilian economy is stable in all quarters of the following year, it is agreed to increase gross domestic product of product (GDP) of only 0.6%.

"The activity performance leaves something that would be desirable," says economist and partner of Tendências, Alessandra Ribeiro, a consultant. "At that rate, the economy will recover to the level of 2014 (before the beginning of the recession) in 2021," he says. For Tendências, Brazil is expected to grow by 2% next year. Consultants estimate a high level of 2.6%.

During 2019, the Brazilian economy was disappointed. Between January and March, GDP fell by 0.2%, and the indicators in the first two quarters continued to show weak activity – growth that banks and consultants expect from May to June is between 0.3% and 0.4%.

  • Why does the Brazilian economy not grow?

In addition to all internal difficulties, Brazil should be hit by the slowdown in the international economy next year. The activity of developed countries has shown signs of cooling, which should impede global trade, which is already weakened by a US-led trade war.

"The deterioration of the global economy affects Brazil, even more than we usually imagine," says economist Itaú Felipe Salles. "This slowdown is intensifying, especially in the part of global trade."

With the weakness of the economy this year and the international slowdown, Itaú already predicts growth of only 1.7% by 2020

Over the past few weeks, the central bank in large economies has begun to signal an increased concern about possible slowdown. Federal Reserve (Fed), for example, at the last monetary policy meeting, said they should start lowering interest rates despite an increased uncertainty over economic outcomes.

Although activity data is disappointing, analysts estimate that the economy should show a slight acceleration from the second half of this year if pension reform is approved. It is considered to be the key to obtaining the rights of public accounts and thus ensuring investor confidence in the solvency of the country.

Pension reform is still in the special committee of the House of Representatives. It is expected that the Senate will be approved by the end of the year.

"Since the second half of the year, I believe structural issues will be on the right track, with approved pension reform, tax is also underway for oil and gas auctions in November, which promises to be a record," says economist MB Associados's consultant, Sergio Vale.

The expected acceleration will not, however, take place sharply, especially since the crisis has reduced potential GDP in recent years and, with the fiscal crisis, the government does not have enough room to stimulate the economy. It is expected that in the next quarters average growth will rise to close to 0.5%.

"Reforms are important because they can increase our annual growth today at a rate of 1% and 1.5%, at a range of close to 3%," says economist GO Associados Eduardo Velho.

Source link