Brazilian Economy in Freefall
Economists warn that the country’s economy is the worst in 25 years.
According to cooked up government numbers, the unemployment rate in Brazil has now reached 10%. In reality, judging by what I see on the street and when visiting businesses, that number is more like 20-25%. In addition to high unemployment, Brazilians also have to deal with the steady increase in prices.
A week’s worth of groceries that five years ago cost R$150,00, today requires almost double that amount. In the latest data regarding Gross Domestic Product (GDP), Brazil confirms what the Brazilian people are feeling in their skin every day: the country is regressing to the lowest living standards and entering the worst economic situation in almost three decades.
The latest piece of information to confirm Brazil’s freefall is GDP, which, according to official numbers, has fallen by 5.4% in the first quarter compared with the same period of 2015. This is the eighth consecutive quarterly decline since the country officially accepted that it was going through a recession.
Brazil is also embroiled in a political crisis that has been shaking the country for months. Both crises have dumped the nation into the deepest recession in over two decades.
In relation to the last quarter of 2015, the decline of the Brazilian economy was 0.3% at the start of the year.
Regression has been seen in all economic activities, including agriculture, which had been a cornerstone of the economy in previous quarters and that contributed to alleviate the torrent of negative figures.
During the first quarter, the Brazilian agricultural sector experienced lower yields with products like corn, whose production decreased by 3.7%, compared to the same quarter last year.
As bad as the numbers above appear to be, agriculture is not the sector that has suffered the most. Industry is experiencing a sharp decline in Brazil to a point where it has fallen down 7.3%. Much of the blame for this decline can be associated to the drop in the production of machinery and cars.
Investments, especially foreign cash that at some point in the last 5 years had become the country’s main fuel to promote growth, collapsed by 17%. The latest collapse in investment represents the eighth consecutive decline in a row.
Construction also fell by 6.2%, services by 3.7%, trade by 10.7% and household consumption by 6.3%. Only foreign exports showed a good result in the first quarter black, which is normal in a country where multinational enjoy tax exemptions and special treatment from government. Those special conditions and a devalued Real are excellent for multinationals to make strong profits despite eroding economic conditions.
According to some financial analysts, markets are expected to have an even worse collapse, although the stable level of exports, they say, is a sign that the Brazilian economic anemia is improving.
Apparently specialists took for granted that Brazil’s GDP would collapse by 3.8% this year.
Now, there are many who predict that it will fall by only 3%. According to analysts, one of the reasons for this has been foreign trade.
“The figures released today reflect the situation of the past, what matters is that prospects for improvement in the scenario has been detected,” said Heron do Carmo, professor of economics at the University of São Paulo (USP) .
The recovery of the labor market and investment will, despite this, slow down, he says.
“Companies are not working to the best of their abilities, that is, there are employees who still work reduced hours”.
Unemployment, for this specialist, will remain high throughout the year and will only start to fall in 2017.