World Economy

Brazil Says Crawling Out of Recession

Brazil Says Crawling Out of RecessionBrazil Says Crawling Out of Recession

Brazil expects good news this week—the first return to growth after two years of recession—but with the political system in chaos and unemployment at record highs, few will celebrate.

Latin America’s biggest economy has seen eight straight quarters of shrinkage. On Thursday the gross domestic product statistics will show 0.9% growth for the first quarter of this year, according to a survey of economists by Valor financial daily, AFP reported.

President Michel Temer’s conservative government will take the credit for the comeback, saying that it has restored fiscal responsibility and launched far-reaching austerity reforms. “We have left behind the worst recession Brazil has ever known,” Temer told business leaders Tuesday in Sao Paulo.

But that narrative is being undercut by a corruption crisis that threatens to bring down Temer and cast the country’s political class into ever greater turmoil. Also dampening the relief could be unemployment statistics released Wednesday.

With 14.2 million people already listed as unemployed, the rate could rise from 13.7% to 13.9%, according to a forecast from Gradual Investimentos.

Economy analyst Felipe Queiroz says better GDP figures will have “marginal” impact, without signifying a true end to the recession that saw the economy shrink 3.8% in 2015 and 3.6% in 2016.

In another big moment for the economy this week, the Central Bank is expected on Wednesday to maintain its slashing of sky high interest rates. Already the key Selic rate has dropped from 14.25% in October to 11.25% in April. The bank’s hands have been freed by a steady lessening of inflation, which saw prices shooting up at 10.67% in 2015 and 6.2% last year, before falling to 4.08% in April. This time, though, the bank is expected to take a more cautious approach.

Until a couple of weeks ago the market consensus was for a 1.25 percentage points cut to the Selic, but in Valor’s survey of 41 experts, 35 now forecast a one percentage point reduction. The economic mood in Brazil is even harder to predict.

Much of Temer’s support in the business community until now has been based on his firm push for austerity reforms, starting with a 20-year federal spending cap and now centering on a hugely unpopular attempt to shrink the generous pension system.

Temer, whose term runs out at the end of 2018, has said he does not mind being unpopular as long as he gets the reforms through and he has been lucky to enjoy a large majority in Congress.

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