Deep Recession in the World and Brazil

BRAZIL ECONOMICS - Report 13 Apr 2020 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Paula Magalhães

In the past week the diagnosis has become consolidated that the world is headed toward a deeper recession than that in 2008-2009, and this will be the same path of the Brazilian economy. Despite the irresponsible attitude of President Bolsonaro, Health Minister Mandetta and the state governors are sticking to the social distancing policy, whose relaxation will be gradual to avoid a new spurt of contagion (see Singapore and Japan), leading to a sharp contraction of GDP in the second quarter. That gradualism, combined with the global economic retraction, will make for a slow recovery. Albeit with huge uncertainty, we expect GDP to contract by 5% in 2020, with a certain optimistic bias. There’s no way to face a shock like this, which simultaneously contracts supply and demand, without strong expansion of government spending and credit. This has been occurring in Brazil and the rest of the world. The measures already taken and the reflections of the recession on government revenue and spending should lead to a debt/GDP ratio at the end of 2020 some 10 percentage points higher than at the end of 2019.

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