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By Jamie McGeever
BRASILIA, May 6 (Reuters) – Brazil’s economy will contract 7.4% this year as the coronavirus crisis takes a sledgehammer to demand, production and services, Societe Generale said on Wednesday, adding that the national debt will hit 100% of gross domestic product in 2022.
Even after the sharp revision from the previous call for a 2% contraction, prompted by figures this week that showed a steep fall in industrial production in March, Latin America’s largest economy may contract even further yet.
“A 9.1% (monthly) decline in industrial production in March – a month that was only half impacted by COVID-19 – removes most of the doubt over the recent pace of economic growth,” senior Latin America economist Dev Ashish wrote in a note, referring to the disease caused by the novel coronavirus.
“The risk to our estimates remains skewed to the downside, given the persistent uncertainty over the pandemic situation … (and) the economy will likely grow at a rate well below its much-reduced potential for several years,” he added.
Ashish expects GDP to fall by 10.1% in the second quarter and rebound 12% in the third, assuming lockdowns begin to ease in May or June, and pent up demand returns in the second half of the year.
Growth should bounce back to 4.5% next year, he said.
An annual GDP contraction of 7.4% would be the biggest by far in at least half a century, easily surpassing the 4.25% fall in 1981 and 4.35% decline in 1990, according to central bank figures.
The deep recession will clobber tax revenues and boost crisis-fighting expenditure from the government, which will blow out the national debt to 96.5% of GDP this year and to 100% by 2022, he said. Brazil’s debt currently stands at around 78% of GDP.
Fitch Ratings on Tuesday lowered its outlook on Brazil’s credit rating to negative from stable, citing a rapid deterioration in the public finances as one of the main reasons for the move.
Given the scale of the looming economic crisis, Ashish expects the central bank to cut its benchmark Selic interest rate to 2.50% this year from 3.75% currently and keep it there until mid-2022. (Reporting by Jamie McGeever Editing by Chizu Nomiyama and Bernadette Baum)
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UPDATE 1-Brazil's economy to shrink 7.4% this year, debt to hit 100% of GDP in 2022 - SocGen have 522 words, post on www.reuters.com at May 6, 2020. This is cached page on Talk Vietnam. If you want remove this page, please contact us.