After encouraging economic data from Q2, Fitch Ratings changed its estimate for Brazil’s 2020 GDP growth rate from a 7-percent plunge to a 5.8-percent drop in the year. The credit rating agency sees a steady reopening of the economy despite the virus’s continuous spread.
Among the data that supported Fitch’s decision was the rebound in retail, which suggests that “fiscal transfers to support the vulnerable population and the reopening of the economy have helped to support domestic demand.” However, they warn about the risk of an intensification in the virus’ spreading that could lead to a new economic shutdown.
Still, their outlook is less rosy for 2021. The agency revised its GDP growth estimates downwards, from a 3.5 percent rebound to a 3.2 percent one. In their view, “the recovery is likely to be constrained by the need for fiscal adjustment, a high unemployment rate, and the potential persistence of policy uncertainty related to reforms.”
Fitch also sees the anemic economy keeping inflation below the Central Bank’s target. As a result, interest rates should hover at the 2 percent level in 2020, before gradually increasing to 3 percent in 2021 and 4.75 percent in 2022.
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