Letter IEDI n. 1066—The 2020 crisis in Brazil and projections for 2021
Brazil's total GDP decreased -4.1% in 2020, according to IBGE data. It was a worse result than those of 2015 and 2016, when the country went through one of the most serious crises in its recent history, but it was not as devastating as was predicted in the initial months of the COVID-19 outbreak.
It is worth remembering that in Jun/20 the IMF predicted that Brazilian GDP would shrink -9.1%. We managed to drop less than half of that. Such easing was due to the set of emergency measures adopted by Brazil to combat the economic effects of the pandemic, but also implemented by other important countries, causing world GDP and international trade not to fall as much either.
If the emergency actions brought some relief to the Brazilian economic crisis in 2020, the other side of the coin is that the end of the programs in 2021 jeopardizes the continuity of the recovery, especially in view of the increase in the cases of COVID-19, the uncertainties in relation to vaccination, more restrictions to the mobility of people and to economic activities and unemployment at record levels.
So much so that the projections gathered by the Central Bank's Focus Bulletin for Brazilian GDP in 2021 have continuously fallen since the end of January 2021, going from +3.5% on Jan 29 to +3.26% on Mar 03. The effects of the new restrictive measures adopted in early March may be still not fully incorporated into these expectations.
The reaction in the last two quarters of 2020 led the Brazilian GDP to grow +7.7% in Q3/20 and +3.2% in Q4/20 in the seasonally adjusted series, with an important contribution of the pair investment-industry.
The reaction of manufacturing helped the resumption of transport services and was accompanied, on the demand side, by the reaction of investment. This expansion, however, was not strong enough to save the 2020 result. The main GDP figures for 2020 are highlighted below.
From the perspective of production, two of the three major sectors of the economy suffered contractions in the year as a whole:
• Agriculture and livestock was the only one to grow: +2.0%. In the quarter-on-quarter comparison, it expanded in the first three, with emphasis on those of the first half of the year. From July–September to October–December, using the seasonally adjusted series, the rate was -0.5%.
• Services suffered a major contraction, -4.5%, despite growing in the last two quarters in relation to the immediately previous quarters (seasonally adjusted): from the second to the third, expansion of +6.4%, and from the third to the fourth, +2.7%, after a sharp decrease in the two previous periods. In comparison with the same quarter of the year before, all four quarters registered falls.
• The industry experienced a drop of -3.5% in 2020, mainly due to the second quarter. Comparing Q4/20 and Q4/19, it grew +1.2%, after negative rates in the other quarters of the year. From the second to the third quarter and from the third to the fourth (seasonally adjusted), it achieved growth of +15.4% and +1.9%, respectively, after a strong decline in the two previous periods.
• Still with regard to the industry, its contraction in 2020 was due to the -4.3% decline in manufacturing and the -7.0% decrease in construction. Mineral extraction, on the other hand, grew +1.3% in 2020. It is worth mentioning that the manufacturing industry, in spite of the strong decline in the year, showed signs of recovery in the second half, reaching a +5% growth rate in Q4/20 versus Q4/19.
From the perspective of expenditure, the fall in aggregate output is mainly associated with the decline in household consumption, despite the decrease in other components as well.
• Household consumption fell -5.5% in 2020, even with the injection of emergency aid resources to mitigate the adverse impacts of social distancing measures to combat the pandemic;
• Government consumption declined -4.7%, while exports of goods and services fell -1.8%, having already decreased in 2019. Imports dropped -10.0%;
• Gross fixed capital formation (GFCF) decreased -0.8% in the pandemic year. It should be noted that, in line with industrial performance, fixed investment grew +13.5% in Q4/20 compared to the same period in 2019.