Brazil GDP shrinks 1.5% in Q1 2020 due to pandemic

The 1st quarter drop in Brazil's gross domestic product only reflects the early effects of the coronavirus crisis, with 2nd quarter numbers expected to be much worse

RIO DE JANEIRO, Brazil – Brazil's economy – Latin America's largest – contracted by 1.5% in the 1st quarter due to the shutdown triggered by the coronavirus pandemic, the government reported on Friday, May 29.

But the drop only reflects the early effects of the crisis because the lockdown measures that stalled the country's economy only began in mid-March.

The figures were released amid a fierce political battle in Brazil over the pandemic, with far-right President Jair Bolsonaro urging state governors to end preventive lockdowns which he says are damaging the economy.

Government data released on Thursday, May 28, showed nearly 5 million people lost their jobs in the 1st quarter as the effects of the pandemic began to be felt, mainly in trade, construction, and services.

Analysts forecast unemployment, currently at 12.6%, to soar to more than 18% by the end of the year.

The 1.5% drop in gross domestic product (GDP) was in comparison to the last quarter of 2019, said the national statistics institute IBGE.

When compared to the 1st quarter of 2019, the contraction was 0.3%.

In the first 3 months of 2020, the services sector, manufacturing, and farming all suffered major declines, the statistics agency said.

Worst still to come

Brazil has emerged as a major coronavirus hotspot, with more than 26,000 dead and more than 400,000 cases of infection. (READ: Brazil presidential spokesman tests positive for coronavirus)

Figures for the month of March suggest that the 2nd quarter numbers will be catastrophic.

Industrial production was down 9.1% compared to February, and the auto manufacturing sector declined a mind-boggling 99%.

"In Brazil, the same thing happened as in other countries affected by the pandemic, with a decline in services aimed at families due to the closure of shops," according to IBGE analyst Rebeca Palis.

"Durable goods, vehicles, clothing, beauty salons, gyms, housing, food suffered greatly with social isolation," she said.

A poll of economists consulted by the business daily Valor said that in the 2nd quarter, Brazil's economy will shrink by a staggering 11.1%.

Many state governors, including those of Sao Paulo and Rio de Janeiro, ordered partial quarantines in mid-March in a bid to halt the spread of the pandemic.

Bolsonaro, who has pinned his hopes of reelection on a booming economy, has berated governors for imposing what he calls "the tyranny of total quarantine."

His government has put in place programs to help the most vulnerable, including an allowance of 600 reals, around $100, for the working poor dependent on the informal economy.

However, many analysts consider those measures insufficient. – Rappler.com