Brazil’s economy shrank in the first quarter, raising the specter of recession
(NELSON ALMEIDA)

Rio de Janeiro (AFP) – Brazil’s economy shrank in the first quarter of the year, official data showed Thursday, taking Latin America’s biggest country to the brink of recession for the first time in two years.

Gross domestic product contracted 0.2 percent from the previous quarter, the statistics agency said, marking the first decline in the key indicator of economic activity since the end of 2016.

The figure confirms what many Brazilians already knew — two years on from a devastating 2015-2016 recession, Brazil’s economy is still struggling to recover.

It is bad news for far-right President Jair Bolsonaro, who took power in January on a promise to revive the economy.

His signature pension overhaul, seen as key to unlocking other much-needed economic reforms and repairing the country’s finances, has stalled in Congress.

“The early signs are that growth in the second quarter has been very weak, too, and there is now a real risk that the economy will slip into a technical recession,” said William Jackson of London-based Capital Economics.

A technical recession is defined as two consecutive quarters of GDP decline. 

When compared to the same period a year ago, the economy grew 0.5 percent in the first quarter, which Jackson said was the slowest pace in two years.

– Bleak outlook – 

Brazil’s slowdown increases pressure on its central bank to cut the main interest rate, which is already at a historic low of 6.5 percent.

But at the bank’s last meeting earlier this month, it indicated rates would remain unchanged for the rest of the year.

The outlook for Brazil’s economy is bleak. Market analysts have pared back their full-year growth forecasts for 13 weeks in a row and now expect the economy to grow 1.2 percent. 

That would be only slightly faster than the 1.1 percent growth recorded in 2017 and 2018.

Necton chief economist Andre Perfeito is even more pessimistic, with a growth forecast of 0.9 percent, which he expects to “revise down” in the coming days.

Economy Minister Paulo Guedes warned recently that Brazil was “at the bottom of the well.” The government has slashed its forecast for 2019 economic growth to 1.6 percent, from an estimate of 2.5 percent early in the year.

Guedes, who is spearheading the government’s reform agenda, threatened to resign last week if the pension bill was not passed or was watered down too much.

Adding to the government’s woes is rising unemployment, with more than 13 million people out of work. Jobless data to be released on Friday is expected to show the trend continued last month.

One of the factors holding back Brazil’s recovery is its huge public debt, which the International Monetary Fund estimates to be 88 percent of GDP — one of the largest among its peers.

The commodities-driven economy was also hit hard by the deadly collapse of a tailings dam owned by Vale in January that forced the mining giant to suspend operations at several mines, reducing its output of iron ore and hurting Brazil’s exports.

Brazil is the latest Latin American country to flirt with recession. Mexico’s economy shrank 0.2 percent in the first quarter of the year while Argentina is in the grips of a worsening economic crisis.

The shrinkage in the Brazilian economy comes as Bolsonaro’s government faces growing opposition only five months into its term.

Bolsonaro’s popularity has plunged as infighting between government factions and conflict between his administration and key leaders of Congress, where his ultraconservative  Social Liberal Party lacks a majority, hinder progress.

More protests over recent education spending freezes are expected Thursday, weeks after tens of thousands of demonstrators took to the streets across the country in defense of publicly funded high schools and universities.

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.