As Brazil’s Political Crisis Rumbles on, What Next for the Economy?

With Brazil seemingly never out of the headlines for all the wrong reasons, the economy remains mired in recession and the government in crisis. As I explored earlier in the year, the Brazilian economy is beset by challenges: growth is stagnating, inflation and unemployment climbing, the currency weak, government finances are strained and the consumption boom is well and truly over.

We’re currently forecasting real GDP growth of -1.4% in 2015, with economic growth remaining weak through 2016 and 2017. Added to which, risks are on the downside, meaning that as the year progresses this figure is more likely to be revised down than up. If the economy shrinks twice as fast as our expected rate of -0.8% in Q2, we could see growth for the year as a whole somewhere in the region of -2.2% with unemployment reaching 7.0% in 2016.

Growth Slowdown Scenario in Brazil

Brazil-Slowdown

Source: Euromonitor International CAMI Macro Model

Note: Data are forecast from Q2 2015.

 

It’s true that the recession has all the hallmarks of a cyclical slowdown, and the country is a victim of the China slowdown and commodity price falls, but that shouldn’t detract from the major challenges the government faces, and the structural reform which is a prerequisite for sustainable growth. These structural reforms are not likely in the current environment with the government in gridlock.

 

Read more on Brazil’s challenges and the implications for the wider region here: Latin America’s Spluttering Economic Heart