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The COVID-19 pandemic exposed Brazil to an unprecedented health and economic challenge. To contain the pandemic, Brazil implemented social measures to slow the spread of the virus and contain its impact on the health system capacity, which is uneven across the country. COVID-19 hit as Brazil was still recovering from its 2014-16 recession. Economic recovery remained weak and fiscal policy space limited since the peak of the recession in 2015-2016, with GDP growth below 2% in the following years.
The pandemic, and the health policy response to it, resulted into a sharp decline of external and domestic demand while also constraining supply. It has brought uncertainties to the macroeconomic policy framework, especially in the fiscal area, which translate into downside risks, thus calling for strong fiscal consolidation and the adoption of structural reforms in 2021, as soon as the spread of the disease is controlled.
To protect the most vulnerable people, the Government put forward a large, timely, targeted and time bound fiscal package focused on social assistance. The cost of this package was estimated at BRL 815.5 billion (USD 156.8 billion), or 11.4% of GDP in 2020. The large fiscal stimulus limited the annual contraction in 2020 to 4.1%. The economy experienced a robust rebound, with growth reaching 5.0% in 2021 and 2.9% in 2022. This resurgence was driven by several factors, including a substantial fiscal stimulus, a successful vaccination campaign, favorable conditions in commodity markets, and increased demand for services. Looking ahead, growth is expected to remain steady in 2023, with a projected rate of 2.6%. This growth will be primarily powered by the agriculture sector and further bolstered by increased consumption by households and government.
