The Central Bank cut its projection for Gross Domestic Product (GDP) to zero in 2020, compared to growth of 2.2% calculated in December, which could reach zero.
Therefore, highlighting that the stability currently seen is associated with "significant" economic impacts, albeit resulting from the coronavirus pandemic, according to the Quarterly Inflation Report published this Thursday.
GDP may reach zero
"Although additionally, below-expected results in economic indicators at the end of 2019 and beginning of 2020. Therefore, they affected the expected performance of activity in the first quarter," said the BC.
"However, in terms of trajectory, the projection for annual GDP considers a sharp decline in GDP in the second quarter, followed by a significant return in the last two quarters of the year," the monetary authority added.
The Central Bank emphasized that there is a high degree of uncertainty in making projections in a crisis environment. It also stated that the magnitude of the pandemic's impact on domestic economic activity will be linked to the severity and length of the outbreak in the country and the public measures being adopted in various sectors.
Zero economy?
Therefore, expectations were in line with those released last week by the Ministry of Economy's Economic Policy Secretariat, which now forecast a GDP increase of 0.02% this year.
Regarding monetary policy, the Central Bank reiterated its view that it considers maintaining the Selic rate at its new level of 3.75% per year appropriate. However, the increased risk variance and new information on the economic situation will be essential in defining its next steps.
This briefing note aimed to assess the channels through which the Covid-19 epidemic is affecting the Brazilian economy, as well as provide estimates of its impact on GDP growth in 2020.
In short, we emphasize that it is still too early to determine the impact. As more economic data from Brazil and the rest of the world is released, it will be possible to refine estimates and reassess the scenario.
Finally, we emphasize that the SPE's official GDP growth projections take into account a broad set of models. This note was intended solely to quantify, using an alternative methodology, the impact of a specific economic event.