The technical definition of a recession is when GDP shrinks in two consecutive quarters. Brazil is technically in a recession. The GDP of Brazil contracted by 0.7% in the first quarter (April -June) and 1.9% in the second quarter (April-June) of 2015.
What is wrong with Brazil?
Brazil is mired in a recession
- Its unemployment reached around 7.5% in July 2015.
- It has a persistently high inflation above the official target of 4.5%.
- Brazil’s currency real has depreciated around 60% since 2011
- Fiscal deficit has reached to 8 % of GDP
- There is an acute water shortage in brazil and 75% of its energy comes from hydroelectricity. This has led to high energy prices in Brazil.
What are the causes of the recession?
- Weak global economic growth has affected the economy of almost all countries.
- Low commodity prices: Brazil’s economy grew in the last decade on the back of a boom in commodity prices particularly oil, sugar, coffee and iron-ore. As Brazil is rich in natural resources, half of its exports were commodities. This high growth hid the structural problems of the economy like bureaucracy, poor infrastructure etc. Now, the commodity prices have declined and, therefore Brazil’s growth has slowed down. It has also exposed the flaws in the Brazil economy.
- The Slowdown in China: China was one of the largest importers of commodities in the world. With the slowdown in China, commodity-exporting countries like Brazil have been the worst hit. China was one of the main export partners of Brazil comprising 17 % of its total exports.
- The corruption scandal in the oil giant Petrobus also hit investors sentiments. Petrobus is the largest company in Brazil and fourth largest in the world.
- To make things worse, there is a huge fiscal deficit in Brazil. So there is a little fiscal space to revive the economy.
- When the economy was growing, Brazil became fiscally irresponsible. It spent a lot of cash on welfare programmes and gave tax breaks to people. One example of it is the extremely generous pension system of Brazil. An average Brazilian can get a pension of as high as 70 % of their final pay.
We have delineated the factors which contributed to the recession in Brazil. Brazil has to make structural changes to get the economy back on track.
Except India, growth rates of all the other BRIC countries have faltered. India is described as the only bright spot in the slowing world economy. Brazil and Russia are in recession and China’s growth has slowed down.
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Thanks for writing such a beautiful articles. Your articles are very easy to understand. Please continue to write such articles in future.
Can we say it is global integration ie cause of all miseries in the world ? Because your first 3 points indicate towards that. We have already seen the impact of US subprime crisis and euro crisis on the world.