Wednesday , August 12 2020

Brazil’s economy shrinks in Q1 as industrial production falls


Odds that Latin America’s largest economy contracted in the first quarter increased after March industrial production fell by more than double analysts’ expectations.
Brazil’s output tumbled 1.3 percent in March, its worst reading in six months, the national statistics bureau reported. In the 12 months through March, industrial production contracted for the first time since 2017.
The Brazilian economy has suffered with a disappointing recovery since emerging from a deep recession two years ago. Record-low interest rates haven’t provided the hoped-for boost to the industrial sector, which since 2017 hasn’t once posted back-to-back months of growth.
With the government fiscally strapped, a wave of private-sector investment is needed to accelerate growth, but confidence has wavered since President Jair Bolsonaro assumed power. Exports to Argentina are also down as the neighboring country sinks into recession.
Brazil’s largest private-sector banks cut their estimates for the economy in the aftermath of the data. Itau now expects gross domestic product to contract 0.2 percent in the first quarter from the previous period, while Bradesco sees it shrinking 0.1 percent.
The March industry data “definitely increases the risk” GDP contracted in the first three months of the year, said Alberto Ramos, Goldman Sachs’ chief Latin America economist.
Edward Glossop, Latin America economist at Capital Economics, added that the first-quarter data is “likely to be ugly” and it appears the economy may have posted a small contraction.
Swap rates fell across the board.
Interest paid on the contract maturing in January 2020 dropped 4 basis points in afternoon trade, as the weak economy suggests no scope for inflationary pressures.

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