Brazil economy shrinks 0.2 percent in first quarter: official

Advertising

Rio de Janeiro (AFP)

Brazil's economy shrank in the first quarter of the year, official data showed Thursday, taking Latin America's biggest country to the brink of recession for the first time in two years.

Gross domestic product contracted 0.2 percent from the previous quarter, the statistics agency said, marking the first decline in the key gauge of economic activity since the end of 2016.

A technical recession is defined as two consecutives quarters of GDP decline.

The figure confirms what many Brazilians already knew -- two years on from a devastating 2015-2016 recession, Brazil's economy is still struggling to recover.

It is unwelcome news for far-right President Jair Bolsonaro, who took power in January on a promise to revive the economy.

His signature pension overhaul, seen as key to unlocking other much-needed economic reforms and repairing the country's finances, has stalled in Congress.

"The early signs are that growth in the second quarter has been very weak, too, and there is now a real risk that the economy will slip into a technical recession," said William Jackson of London-based Capital Economics.

Brazil's slowdown increases pressure on its central bank to cut the main interest rate, which is already at a historic low of 6.5 percent.

The outlook for the rest of the year is bleak. Market analysts have pared back their full-year growth forecasts for 13 weeks in a row and now expect the economy to grow 1.2 percent. Growth in 2018 was 1.1 percent.

Economy Minister Paulo Guedes warned recently that Brazil was "at the bottom of the well" as he slashed the government's forecast for 2019 economic growth to 1.5 percent from 2.2 percent.

Unemployment is also rising, with more than 13 million people out of work. Jobless data to be released on Friday is expected to show the trend continued last month.

One of the factors holding back Brazil's recovery is its huge public debt, which the International Monetary Fund estimates to be 88 percent of GDP -- one of the largest among its peers.

The economy was also hit hard by the deadly collapse of a tailings dam owned by Vale in January that forced the mining giant to suspend operations at several mines, reducing its output of iron ore and hurting Brazil's exports.

Brazil is the latest Latin American country to flirt with recession. Mexico's economy shrank 0.2 percent in the first quarter of the year while Argentina is in the grips of a worsening economic crisis.