Central Bank slashes GDP growth forecast due to Covid-19

The Brazilian Central Bank reduced its growth forecast from 3.8 to 3.6 percent this year, due to the impacts of renewed coronavirus restrictions on the economy.

In a recent report, the monetary authority said that positive results from January and February did not factor in new coronavirus restrictions, especially when it comes to the services sector. The tertiary industry alone saw its 2021 growth estimates slashed from 3.8 percent to 2.8 percent. This scenario should be worse in the first quarter of the year, but the bank hopes for improvements as vaccination campaigns gain steam. 

“Considering vaccination plans and the offer of vaccines so far, we hope the economic impacts will be more apparent in the second half of the year, particularly in services that need to be performed in-person,” they wrote.

The fiscal situation should also cause a reduction in the government’s expenditures, which is an important contributor to GDP.  Now, the Central Bank expects the administration’s spending will increase by just 1.2 percent, far from the initial forecast of 3.1 percent. 

In better news, industry is expected to grow 6.4 percent, due to positive effects carried over from last year, but also owing to increased production of goods to bolster stocks, amid expectations that the new emergency aid benefit scheme will boost consumption. The oil and gas industry is also expecting a better scenario, with growth perspectives reviewed upward to 5.1 percent.  

Meanwhile, inflation is a concern. With commodity prices on the rise, the Central Bank believes consumer prices may see a cumulative increase of 7.7 percent by May, but projections suggest a fall in the second half of the year.

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