Brazil Likely to Cut 2020 GDP Forecast Amid Coronavirus Weakness

(Bloomberg) -- Brazil’s government is likely to cut its 2.4% growth forecast for the economy in 2020 to take into account the impact of the coronavirus in slowing global activity, a person familiar with the matter said.

A lower-than-expected gross domestic product expansion would lead to reduced inflationary pressure, which may open some space for the central bank to cut the key interest rate further, the person said, asking not to be named because of not being authorized to speak publicly. Any such rate decision should be taken exclusively by the monetary authority, the person said.

Brazil’s central bank declined to comment.

The central bank has cut its key interest rate to a record low 4.25% while the government of President Jair Bolsonaro prepared an ambitious agenda of privatizations and reforms in a bid to jumpstart activity. Even so, some analysts have cautioned growth may still fall short of 2% this year, while fresh tensions between congress and the presidency threaten to hurt the approval of the economic reforms.

Read More: Brazil’s First Virus Case Adds Risk to Growth Malaise

GDP estimates will be revised in early March because the Economy Ministry has to prepare the first budget report of the year, with officials growing increasingly pessimistic by the spread of coronavirus to Europe and its arrival to Brazil this week, according to the person. Private economists in a Bloomberg survey had already adjusted their forecast for this year to 2.1%.

Even so, the use of fiscal stimulus to boost growth has been ruled out by the Economy Ministry because it’s seen as counterproductive due to its financial costs, the person said, adding that moving forward with the government’s reformist agenda is the best way of spurring the economy.

While the relationship between Bolsonaro and congress deteriorated in the last few weeks, the scenario for reform approval is still favorable, the person said.

The Economy Ministry declined to comment.

©2020 Bloomberg L.P.

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