Brazil Economic Rout Deepens

Brazil’s economic rout deepened in the fourth quarter as investors and consumers remain skeptical of the government’s austerity measures that marked a disastrous year of corruption and recession.

Gross domestic product contracted 0.9% in the final three months of 2016, its biggest decline in a year, after a revised 0.7% drop the previous quarter, the national statistics institute said Tuesday. That was worse than the median estimate for a 0.5% decline from 46 economists Bloomberg surveyed, and lower than all but four of their estimates. For the full year Brazil contracted 3.6%.

Amid the biggest bribery scandal in the nation’s history, Brazil’s economic and political crisis has decimated both investment and consumption while unemployment has now reached record levels. An economic recovery may remain elusive even as President Michel Temer wins investor praise for efforts to shore up Brazil’s finances, and plunging inflation allows the central bank to lower borrowing costs.

“There’s no new evidence of where the economic activity is going to come from,” Andre Perfeito, chief economist at Gradual Cctvm, said by phone. “It’s not true that lower interest rates alone make for investment.”

Swap rates on the contract maturing in January 2019 rose three basis points to 9.69% in early morning trading. Brazil’s currency, the real, gained 0.52% to 3.120 per US dollar.

Minutes after the GDP figures were released, Temer vowed to push ahead with his reform agenda and highlighted some economic bright spots such as falling inflation and record foreign direct investment.

Yet investment dropped 1.6% from the third quarter. It stood at 16.4% of GDP in 2016, down from 18.1% and 19.9% in the preceding years, according to the statistics institute.