March 26, 2020 / 11:52 AM / 6 days ago

UPDATE 2-Brazil central bank slashes 2020 GDP growth forecast to zero

(Adds detail on GDP breakdown)

By Jamie McGeever

BRASILIA, March 26 (Reuters) - Brazil’s central bank on Thursday slashed its 2020 economic growth forecast to zero percent from 2.2%, citing the shock from the coronavirus pandemic to domestic activity and warning that a high degree of uncertainty surrounded the outlook.

The central bank’s latest forecast, in line with the government’s revised outlook, predicts a sharp contraction in the second quarter followed by a rebound in the second half of the year, according to its quarterly inflation report.

The central bank also lowered its inflation outlook for this year to 3.0% from 3.5% in its previous inflation report, based on market projections for interest rates and a stable exchange rate of 4.75 reais per dollar.

That would be a full percentage point below its official 2020 target of 4.0%.

“In terms of the path for GDP this year, the forecast is for a sharp decline the second quarter, followed by a notable rebound in the last two quarters of the year,” it added.

Some of the central bank’s downward revisions from its projections three months ago were significant. Brazilian industry is now forecast to contract by 0.5% this year instead of growing 2.9%, and fixed business investment to shrink by 1.1% instead of growing 4.1%.

Services, which accounts for almost two-thirds of all economic activity, is expected to show zero growth this year instead of expanding by 1.7%, the central bank said. Only agribusiness is expected to grow at the same rate, 2.9%, as predicted three months ago.

“The magnitude of the pandemic’s impact on domestic economic activity will depend on the severity and extent of the outbreak in the country, and the measures being taken in various areas” to combat it, the central bank said.

The central bank has taken a range of measures to pump liquidity into Brazil’s banking system and financial markets to mitigate the impact of the crisis, while the government is also providing support for people and businesses hardest hit by the sudden shutdown.

The central bank also revised its 2020 trade surplus forecast to $33.5 billion from $32 billion in its previous report three months ago, and lowered its current account deficit estimate for this year to $41 billion from $57.7 billion.

The current account deficit will be financed by estimated foreign direct investment inflows this year of $60 billion, down from the central bank’s previous estimate of $80 billion. (Reporting by Jamie McGeever Editing by Brad Haynes and Bernadette Baum)

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