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World

Brazil economic activity fell 4.05pc in 2020, central bank index shows

  • The IBC-Br economic activity index, a leading indicator of gross domestic product, rose a seasonally adjusted 0.64% in December.
  • The government's GDP forecast for last year is a 4.5% contraction, which would be its biggest annual slump yet.
Published February 12, 2021

BRASILIA: Economic activity in Brazil fell 4.05% last year, a central bank index showed on Friday, with the economic blow from the COVID-19 pandemic for the year as a whole softened by an eighth consecutive month of growth in December.

The IBC-Br economic activity index, a leading indicator of gross domestic product, rose a seasonally adjusted 0.64% in December, more than the 0.4% forecast in a Reuters poll of economists. It was up 1.34% versus December 2019.

The government's GDP forecast for last year is a 4.5% contraction, which would be its biggest annual slump yet, but much smaller than many economists had predicted at the onset of the COVID-19 pandemic early last year.

If the IBC-Br index is accurate and last year's GDP decline comes in at 4.1%, that would be the biggest annual contraction since the 4.35% fall in 1990, central bank data shows.

The first official estimate will be released on March 3.

As the central bank chart below shows, however, Latin America's largest economy by the IBC-Br index measure is 7% smaller than it was at its peak in December 2013, on a seasonally adjusted basis.

According to the IBC-Br index, economic activity shrank 0.69% in the fourth quarter of last year compared with the same period in 2019, and was down 1.4% from the pre-pandemic levels of last February.

Economy Minister Paulo Guedes has said the economy completed a strong "V-shaped" recovery late last year and could grow by as much as 4% this year.

But as Alberto Ramos at Goldman Sachs said, a second wave of the virus, the end of emergency cash transfers to millions of poor families, high food price inflation and falling consumer confidence are all weighing on economic activity.

That should "soften/weaken the pace of the recovery in the coming months until a mass vaccination program in 2H 2021 releases some of the pent up demand, particularly in contact-intensive services," he wrote in a note.

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