BRICS falling off the wall. Here are a few headlines on Brazil’s economy,
Brazil’s recession deepened in the third quarter, with analysts saying it is the country’s worst economic crisis since the Great Depression, as political gridlock and a giant corruption scandal have halted investment and forced consumers to pare their spending to the bone.
Gross domestic product shrank 4.5% in the third quarter from a year earlier, the biggest contraction since Brazil started measuring GDP using the current system in 1996, Brazil’s statistics agency said Tuesday. The figures were dismal across the board and have already led economists to cut their forecasts for 2016.
Brazil Government Announces Spending Freeze. Fiscal picture deteriorating amid deep recession, political gridlock, but cutting nearly 90% of government spending requires congressional approval or constitutional change,
The government said it was freezing all that is remaining in the 2015 budget, except earmarked, mandatory costs such as public-servant salaries, retirement benefits, jobless insurance and the administration’s hallmark income-distribution program known as Bolsa Família.
The frozen funds amount to 11.2 billion Brazilian reais ($2.9 billion) for the executive branch and 1.7 billion reais for the judiciary and legislative branches, said Dyogo Oliveira, an executive secretary at the Planning Ministry.
The announcement came hours after the central bank said Brazil’s budget gap in October reached 9.5% of gross domestic product, up from 9.34% of GDP in September, a level economists consider too high.
Finance Minister Joaquim Levy, when he took on the job in January, promised to end the year with a primary surplus—or the budget balance before interest payments—equal to 1.1% of GDP.
But a deep recession ensued, surprising economists within and outside the government. A weekly survey by the central bank shows economists forecasting a 3.2% contraction this year, substantially worse than their early-January forecast of 0.5% growth.
The downturn has drastically reduced tax revenue. As a result, even after cutting 79.5 billion reais, or 1.4% of GDP, in its spending throughout the year, the government still can’t meet its target.
Bloomberg’s David Biller is even gloomier, Withering Demand Leaves Brazil GDP in ‘Obituary’ Condition
“There is no room for any growth in the coming quarters,” Perfeito said by phone from Sao Paulo. “The situation is really, really bad.”
The Economist has an equally gloomy backgrounder, Brazilian waxing and waning
Red tape, poor infrastructure and a strong currency have rendered much of industry uncompetitive. So consumers have been the main source of demand. A low unemployment rate pushed up wages. In the past ten years wages in the private sector have grown faster than GDP (public-sector workers have done even better). That allowed consumers to borrow more, which encouraged still more spending. Now the virtuous circle is turning vicious. Real wages have been falling since March, compared with a year earlier, mainly because Brazilian workers’ productivity never justified the earlier rises. People are returning to seek work just as there are fewer jobs to go around: unemployment, which has long been falling and dipped below 5% for most of 2014, increased to 7.9% in October. Economists expect it to reach 10% next year.
A combination of lower commodity prices, fiscal contraction and the fading of a consumer credit boom hit what was once one of the world’s fastest-growing economies.
Brazil has also been hit by the big “Car Wash” investigation into corruption at Petrobras, the state-owned oil company, which has paralysed congress and the corporate sector.
I disagree with the latter, in that Brazil has not been hit by the big “Car Wash” investigation into corruption at Petrobras; Brazil is suffering the consequences of long-term corruption in all its institutions. It’s not the investigation, it’s the corruption itself.