World Economy

Brazil Economy Slumps to 25-Year Low

Brazil Economy Slumps to 25-Year LowBrazil Economy Slumps to 25-Year Low

Brazil’s economy suffered its worst slump for quarter of a century last year as a global commodity rout, a domestic political crisis and rising inflation forced businesses to slash spending and jobs.

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

Official figures showed Brazil’s GDP fell 3.8% in 2015, the steepest decline since 1990, when the country was battling hyperinflation. Last year finished on a gloomy note with fourth quarter GDP down 1.4% on the previous quarter against the backdrop of a deepening political corruption scandal.

The Brazilian economy is expected to shrink again by more than 3.0% this year, the worst consecutive annual plunges since records began in 1901. Four years ago, the economy was growing by more than 4.0% a year.

The gloomy news will raise pressure on President Dilma Rousseff, who is fighting efforts to impeach her over charges that she used money from state-run banks to plug holes in the budget.

More timely figures showed the private sector contracted at a record pace last month. The Brazil composite output index, published by data company Markit, dropped to its lowest since the survey began in 2007. The index, which tracks companies across the economy, dropped to 39 in February, marking the 12th month running below the 50-point mark that separates expansion from contraction.

Brazil’s economy had been hit hard by a collapse in commodity and oil prices in the past two years, said Mihir Kapadia, head of Sun Global Investments, an emerging markets wealth management company in London.

“The situation has been made worse by the high debt levels, especially in foreign currency–essentially in US dollars,” Kapadia added.

 Grim Outlook

The outlook is almost as grim with the central bank forecasting a 3.45% contraction for this year.

Brazil is “replicating the lost decade of the ’80s in just two years,” Goldman Sachs economist Alberto Ramos said in a research report. He added that the economy was close to an outright depression given that its contraction began nearly two years ago.

Brazil’s government said the poor data had been expected and added that it was focused on boosting the economy this year. “We want 2016 to be a year of recovery for jobs, employment, income, with economic growth,” Labor Minister Miguel Rossetto said.

Brazil’s GDP contracted 1.4% in the fourth quarter from the third, which was its fourth straight quarterly decline. It was down 5.9% from the fourth quarter of 2014. Agriculture was the only bright spot, with a fourth-quarter growth rate of 2.9% versus the third quarter.

Brazil’s industry and services sector fell 1.4% each in Q4. Household consumption declined for a fourth straight quarter, with a drop of 1.3%. Investments plunged 4.9%. Government consumption fell 2.9%–the steepest quarterly decline since the end of 2008.