March 20, 2020 / 7:25 PM / 15 days ago

Brazil government slashes 2020 GDP growth outlook to zero, insists spending cap stays

BRASILIA (Reuters) - Brazil’s government on Friday slashed its 2020 economic growth forecast to zero as it factored in the expected hit from the global coronavirus outbreak, but insisted there will be no fiscal largesse to cushion the blow.

It stopped short of forecasting contraction this year, unlike many economists who say 2020 will be one of Brazil’s most painful on record, but officials did say a technical recession of shrinking activity in the first two quarters is possible.

In its latest bi-monthly revenue and expenditure report, the Economy Ministry said growth this year will evaporate, compared with its previous call of 2.1% expansion issued only 10 days ago.

The Economy Ministry said it now expects primary revenues this year to be 32.73 billion reais ($6.6 billion) lower than forecast in its last report, and primary expenditures to be 6.33 billion reais greater than previously thought.

This means that if the government is to meet its 2020 primary budget deficit target of 124 billion reais, there may have to be budget freezes of 37.5 billion reais this year.

Speaking to reporters after the report’s release, economic policy secretary, Adolfo Sachsida, and special secretary to the ministry, Waldery Rodrigues, insisted the government will not break its spending cap rule in response to the crisis.

Sachsida said relaxing its spending rules and ramping up spending now would risk turning the current “transitory” shock into a permanent one, as Brazil would be back in another crisis once this one passes.

He said “prudence” and cool heads were crucial, and insisted money will get to where it needs to go.

The spending ceiling rule dictates that government spending in any year cannot rise by more than the previous year’s annual inflation rate. This year’s spending is capped at 1.454 trillion reais, 90% of which is non-discretionary items like social security, education and public sector salaries.

Brazil’s Senate on Friday approved a presidential decree declaring a national emergency over the coronavirus, allowing the government to waive budget deficit targets and free up resources.

The Economy Ministry this week unveiled a package of measures worth almost 150 billion reais to be injected into the economy to support workers and businesses, although virtually none of that was new money.

The Economy Ministry’s income and expenditure report on Friday also showed that the government reduced its average oil price forecast this year to $41.87 a barrel.

Reporting by Marcela Ayres and Jamie McGeever; Editing by Chris Reese, Steve Orlofsky and Andrew Cawthorne

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