Brazil Economy in a Snapshot Q3 2020 Report

Economic Outlook

The Brazilian economy will face a deep recession in 2020 but it is expected to stabilise by Q1 2021, according to the CEIC Leading Indicator, which anticipates turning points in the economic cycle six to nine months in advance. The index approached the neutral value of 100 in July, rising to 93.7 after reaching a low of 28.7 in April. The IMF forecasts that real GDP will decline by 9.1% in 2020, but will grow by 3.6% in 2021, while the central bank’s survey of economists expects it to decline by 5.5% in 2020 and increase by 3.5% in 2021.

Factory output accelerated in July, after reopening from the lockdown in mid-March to May which was imposed due to the COVID-19 pandemic. The manufacturing PMI increased further above the threshold of 50 (dividing expansion from contraction) in July, to 58.2, from 51.6 in June, indicating a significant improvement in industrial activity. However, the PMI of the services sector, which accounts for 72% of the total value added of the Brazilian economy, despite rising, remained below 50, at 42.4 in July, as the demand for services remained suppressed.

After four months below the neutral value of 50, the industrial entrepreneur confidence index soared to 57 in August, which means that companies are more optimistic about the sector’s future performance. Capacity utilisation also improved to 71.8% in June, the second increase in a row, but remained below the level in March of 75.8%.