Although the real (BRL) has regained 5% since March, the currency has fallen 29% against the US dollar over the past year. The year 2015 will surely leave a bigger mark on Brazil's economic history than 2009. Business and consumer confidence indicators have plunged below the lows of 2008-09 against a backdrop of major political-judicial scandals, with each month revealing a new series of evidence and/or suspicions of corruption.



All of the conditions have come together for a severe recession this year, external factors such as the Chinese slowdown, the drop in commodity prices and the normalisationof US monetary policy, including drastic cutbacks in Petrobras' investment spending, monetary tightening; and now fiscal austerity.



"A 2% contraction ia forecasted in 2015 GDP, followed by a slow recovery in 2016, undermined by a negative carry-over effect", says BNP Paribas.



First-quarter figures reveal a mild contraction in Q1 2015 GDP, down 0.6% at an annualised quarterly rate. On the supply side, industry continued to slump, down 8.5% y/y in the first 5 months of the year, but has now been joined by services. Domestic demand contracted 2.6% y/y, driven down by all its components. Household consumption contracted 0.9% y/y, hard hit by the drop in real wages (-2% y/y in the first 5 months of the year) and the upturn in unemployment over the past year.



The fiscal tightening currently underway resulted in a 1.5% y/y decline in public consumption, and gross fixed capital formation tumbled by 7.8% y/y. Net foreign trade, the only factor making a positive contribution to GDP growth, benefited from the ongoing drop-off in imports over four quarters and a rebound in exports, up 3.2% y/y in Q1. Low commodity prices squeezed export revenues and curbed the improvement in the current account, while the capital flows needed to cover the shortfall were in decline.