World News

Brazil sliding into deep, coronavirus-linked recession in 2020: Goldman, JPMorgan

By Jamie McGeever

BRASILIA (Reuters) – Economists at Goldman Sachs and JPMorgan said on Wednesday they expected Brazil’s economy to tip into recession this year as the global coronavirus pandemic pummels demand, investment and trade.

Goldman Sachs slashed its 2020 growth forecast to -0.9% from 1.5% only two weeks ago, while JP Morgan went further to predict that Latin America’s largest economy will shrink by 1.0%.

These are among the most gloomy outlooks for Brazil among the world’s big banks, most of which had estimated growth of between 2.0 and 2.5% at the start of the year. The reversals were prompted by the scale of the coronavirus shock.

“Global and domestic dynamics take a turn for the worse. Recession seems unavoidable,” said JP Morgan economists in a note on Wednesday.

The forecasts came the same day Brazil’s central bank cut interest rates by 50 basis points to a new low of 3.75%. Some economists had said the scale of the crisis merited a 100 basis point cut, like the U.S. Federal Reserve delivered on Sunday.

Goldman Sachs’ economists noted that enforced social distancing and job losses will hit private consumption, while the “significant” increase in economic uncertainty and tightening of financial conditions will hurt investment.

Goldman said it now expected the Latin American economy to shrink 1.2% this year, compared with its previous call of 1.1% growth. It cut Mexico’s outlook down to -1.6% from +0.6%.

(Reporting by Jamie McGeever; editing by Sandra Maler and Grant McCool)