Recession in Brazil Worse than Expected in Third Quarter of 2015

12/02/2015 - 10h46

Advertising

GUSTAVO PATU AND BRUNO VILLAS BÕAS

FROM RIO DE JANEIRO

Amidst ongoing political uncertainty and growing pessimism amongst both consumers and the business community, the recession in Brazil became worse than expected in the third quarter of 2015.

According to data published on Tuesday, the economy shrank 1.7% in the third quarter in relation to the second, amounting to a total reduction of 4.5% in a year.

João Wainer/Folhapress The consensus is that 2016 will mean two years of uninterrupted recession for the Brazilian economy

In research carried out by the Central Bank, the expectations of investors and analysts for the annual reduction were around 4.1% last week, up from just 1.5% at the beginning of the previous quarter.

This is proof of the failure of the government's program of fiscal adjustment. Lacking support in Congress, the government has been unable to present a budget for 2016 with enough revenue to cover expenses.

In the last year and a half, GDP has shrunk by a total of 5.8%. With no end in sight, this is the longest recession since the introduction of the Plano Real, in 1994, which helped to get inflation under control and manage the country's economic crises.

The worse than expected result for the third quarter has led consultants to predict a more negative scenario for this year and 2016.

According to predictions by the bank Itaú, the economy is likely to shrink by an average of 3.4% over 2014-2015, and it may have a record total reduction of 6.1% over 2015-2016.

If things continue like this, the current economic crisis looks likely to be one of the worst in Brazilian history. The consensus is that 2016 will mean two years of uninterrupted recession for the Brazilian economy, something which has not occurred since 1930-31.

Translated by TOM GATEHOUSE

Read the article in the original language