GDP may shrink by up to 4.4 percent. Layoffs have already begun

brazil gdp growth

Amid the turmoil generated by the Covid-19 pandemic, economic forecasts have changed rapidly. In our March 20 Daily Briefing, we explained why Brazil’s unemployment rate could double in 2020—which would have major ripple effects on the economy. The Economy Minister has slashed its growth projection from 2.1 percent just ten days ago to just 0.02 percent today. 

The revision has just been announced.

Other forecasts are even more pessimistic. According to a model carried out by researchers at think tank Fundação Getulio Vargas, the damage could make the Brazilian GDP recede by up to 4.4 percent this year.

The model used pre-Covid-19 estimates as a benchmark scenario and created projections based upon two recent major episodes of economic hardship: the 2008 financial crisis and the 2018 truckers’ strike in Brazil. A third, sum-of-all-fears scenario considers that the crisis we have entered will have the impact of both of these events … combined. And according to the researchers, it might very well be the likeliest outcome.

If the impacts were purely external, as was the case in 2008, Brazil’s GDP would fall by 2.5 percent, according to the model. In the unlikely scenario of a local impact similar to the truckers’ strike, GDP would be stable. Summing up both internal and external impacts, the GDP may fall 4.4 percent.

Companies are already running for the hills. Commerce associations estimate 5 million people will be laid off until April, due to the shutdown of shopping malls and non-essential stores. Airlines Azul and Gol are placing workers on non-paid leave, slashing working hours—and pay. Both carriers have also postponed profit-sharing payments referred to 2019.