Brazil falls further into recession
Share this on

Brazil falls further into recession

Latin America’s  biggest economy took one step closer to a head-on dive as its economy slumped by 1.7 percent compared to the previous quarter, topping economists’ forecast of a 1.3 percent decrease.

The 4.5 percent year-on-year drop is Brazil’s biggest fall since 1996.

The manufacturing sector faced the biggest loss with 3.1 percent, followed by the agriculture and trade sectors both at 2.4 percent, and the services industry declining by 1.3 percent. In a year-on-year comparison, figures become more staggering for the manufacturing sector, which decreased by 11.3 percent, and the trade sector dipping by 9.9 percent.

Imports of goods and services fell by 6.9 percent while exports fell by 1.8 percent. For the third consecutive quarter, household consumption also declined by 4.5 percent while inflation hit a 12-year-high of 10.28 percent for the past 12 months.

Add to this the current unemployment rate at 8.9 percent from October’s 7.9 percent. The current rate is a 2.1 percent increase from last year’s 6.8 percent.

The Brazilian Central Bank’s initially planned to slow the inflation by 4.5 percent in 2016, but has since pushed it back to 2017.

“The idea that consumers might not have income to service debt in the years to follow I think is what terrifies them,” Barclays economist Bruno Rovai told Financial Review. “Even if there is a recovery of sentiment, we believe the labour market will continue suffering throughout the next year, and that will hold down household consumption.”

Finance and political turmoil

The central bank’s benchmark rate now stands at 14.25 percent, almost doubling the rate in 2013. Companies planned loans are on hold, resulting to a 4 percent drop in investments in Q3.

Brazil’s finance sector was further rocked by low grades major ratings firm. Moody’s changed its investors rating from stable to negative in August, citing weaker than expected economic performance and higher government spending. S&P also cut the country’s level to junk.

“Lack of political consensus on fiscal reforms will prevent the authorities from achieving primary surpluses high enough to arrest and reverse the rising debt trend this year and next, and challenge their ability to do so thereafter,” Moody’s noted.

It didn’t help that majority of Brazilians don’t believe in their president anymore. Various polls showed that more than 80 percent of Brazilians want their President Dilma Rousseff to be impeached because of her failure to revive the economy by increasing the taxes. Furthermore, her popularity has hit a record low at 8 percent, the lowest since 1985’s military dictatorship.

The infamous Petrobras scandal added kindling to the fire. The scam has implicated numerous government officials and name dropping of the wealthiest entities are on fire. Rousseff’s name was included at one point as she headed Petrobras during the undercover boom of the scam.

Senator Delcídio do Amaral, a close ally of Rousseff,  was recently arrested for a corruption investigation. Billioneire André Esteves, who at the time of his arrest was a controlling shareholder of Brazilian bank BTG Pactual, was also taken. It was later reported that he lost his shares a week after his arrest.

“Brazil’s economy is in intensive care and will remain sick in the upcoming quarters. It has not yet hit bottom. It is going to worsen, at least through midway of next year,” Andre Perfeito, chief economist at Gradual Investimentos in Sao Paulo, told AFP.

Brazil is still the largest economy in Latin America, making it twice as hard for Rousseff to turn its fate over amid the whirlwind of corruption and weak economic data.

See more:

From bad to worse for Brazil’s Dilma Rousseff

Brazilians take to the streets in anti-Rousseff marches