Emerging Markets

Brazil’s Economic Growth Falls To 25-Year Low

Brazil EconomyBrazil’s economy suffered its worst economic slump in a quarter of a century in 2015 amid a “perfect storm” with severe factors both on the domestic front amid a political crisis, high inflation, fiscal issues, sovereign downgrades, and fleeing investment; but also from severe factors from abroad as oil and commodity prices continue to plunge and growth in China slows.

Official data released on Thursday by national statistics agency IBGE showed that Brazil’s GDP fell 3.8 percent in 2015, the steepest decline since 1990, when the nation was battling hyperinflation and its economy contracted by 4.3 percent.

In Brazil, last year finished on a gloomy note with fourth quarter gross domestic product (GDP) falling 1.4 percent on the previous quarter against the backdrop of a deepening political corruption scandal as President Dilma Rousseff tried to head off the opposition’s efforts to impeach her over alleged accounting irregularities.

Economists warn that the country’s recession has further to run and could deepen amid fresh signs that a drop in demand has continued into 2016.

Brazil’s economy, the world’s seventh-largest economy, is expected to shrink again by over 3.0 percent this year, the worst consecutive annual plunges in economic growth since records began in 1901, as economic activity and confidence sink.

Indeed, Brazil’s outlook for 2016 is bad, as even its central bank is forecasting a 3.45 percent contraction according to its most recent survey. The IMF estimates a 3.5 percent fall in growth this year.

More timely data released on Thursday by data company Markit showed that Brazil’s private sector contracted at a record pace last month. Markit’s Brazil composite output index in February fell below the lows seen during the global financial crisis to its lowest level since the survey began in 2007.

Last year Brazil saw investment plans slashed by 14 percent and the dismissal of over 1 million workers.

“The fall in investment is extremely bad. When you stop investing, you start compromising the future of the country,” said Virene Matesco, a professor at the Fundacao Getulio Vargas, a top Brazilian university.

“The economy is like a car that is stuck in the mud,” Matesco said. “Congress is supposed to be the tractor, but the tractor is broken.”

Brazil is “replicating the lost decade of the 1980’s in just two years,” Goldman Sachs economist Alberto Ramos said in a research report.

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