The economic situation in Brazil is progressively becoming worse, as economists are expecting the Brazilian economy to shrink even more than had been previously forecasted. The country is bracing for its heaviest recession since the year 1901, as consumer confidence is virtually non-existent and political crises are running amok.
The economy of Brazil, which is the largest in Latin America, is expected to contract by 2.95% this year based on a central bank poll of roughly 100 economists. The previous poll only estimated a 2.81% contraction. This represents the 13th straight week in which the 2016 forecast for Brazil has been lowered. It is estimated that the Brazilian economy shrunk by 3.71% in 2015.
Policy makers in Brazil have been totally unable to control inflation, which is increasing at its fastest rate in 12 years. Newly enacted Finance Minister Nelson Barbosa has experienced heavy pressure to moderate austerity proposals that are designed to support public accounts and prevent additional credit downgrades. Meanwhile, the Brazilian government has been plagued by impeachment proceedings and a growing corruption scandal.
Senior Brazilian economist Flavio Serrano stated, “We’re now taking into account a very depressed scenario.”
On December 23, Brazilian Central Bank Director Altamir Lopes stated that the hope is that inflation will be able to be brought down to 4.5% by 2017. Even still, 4.5% is a very high inflation rate, as most countries aim for somewhere between 2% and 3% inflation.
However, the head of President Dilma Rousseff’s Workers’ Party Rui Falcao has stated that Brazil should avoid cutting investments and consider increasing its inflation target in order to avoid greater borrowing costs.
In December, consumer confidence in Brazil reached a record low. Business confidence in the country also saw a record low in October before slightly rebounding.
Brazil has not recorded consecutive years of recession since 1930 and 1931. Barring a freakish miracle, that will change in 2015 and 2016.
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