GDP and Coronavirus – Another Factor to Frustrate Growth in 2020
On the heels of the GDP growth of only 1.1% in 2019, now comes concern over the effects of Coronavirus epidemics in various countries. This is predominantly a supply shock on a worldwide scale, which is more heavily affecting the industry of countries that are integrated in global supply chains. Unfortunately, central banks can do little to counteract supply shocks. Brazil has a relatively small degree of global supply chain integration, and unlike the largest countries, whose central banks either have little room to apply monetary policy (USA and UK) or none at all (Euro Zone and Japan), the Brazilian Central Bank can cut the interest rate to attenuate the effects of the shock on the financial conditions and aggregate demand. The horizon is laden with heavy clouds of doubt, enlarging the margin for error, but from what is known so far, our projection is for GDP growth of 1.5% in 2020, with downside risk.
Accounting for the economic growth of 1.1% in 2019, Brazil’s per capita income is now 8% below the level in the quarter immediately before the start of the recession, making this the cycle with the slowest recovery in history. On the supply side, services expanded by 0.6% in the last quarter of 2019; and industry grew by only 0.2%, with civil construction being mainly responsible for the weak result, with contraction of 2.5% compared to the third quarter. Agriculture suffered a retraction of 0.4%, eroding part of the expansion of 1.4% in the third quarter.
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