Nearshore Americas

Brazil Is Now Officially In Recession

Brazil’s economy has officially slipped into recession, with Latin America’s largest economy reporting two consecutive quarters of contraction. Compared with the second quarter of last year, the economy has shrunk 2.6 per cent, the Brazilian Institute of Geography and Statistics said on Friday.

With the currency plummeting and unemployment and inflation rising, Brazil seems to have stuck in a vicious web of economic mess. The country, it seems, is the first major victim of China’s economic slowdown and decreasing demand for commodities.

As if these are not enough, the Petrobras corruption scandal has reduced the approval rating of President Dilma Rousseff, who now appears clueless as to how to turn the economy around.

Low growth and high inflation are the biggest hurdles policy makers are struggling to deal with. According to reports, just about every major sector is declining in sales. The technical definition of a recession is two consecutive quarters of economic contraction.

The South American country has repeatedly raised interest rates in a desperate attempt to push down inflation. In a a bid to overcome its complex economic problems, Brazil also took the unusual step of raising fuel prices. However, these measures pushed up the prices of necessary goods and services.

When it raised import duties, some foreign firms expressed concern. Japanese gaming firm Nintendo, for example, exited the Brazilian market, complaining of high tariffs on technology imports.

Some economists blame former president Luiz Inacio Lula da Silva’s social welfare programs for the economic problem Brazil is facing today. These programs fed inflation and widened the government’s budgetary deficit. Then, in the second half of 2014, the economy began to sputter in the face of decreasing demand for commodities.

Declining prices for iron ore seem to have contributed greatly to the country’s trade deficit. Some analysts say Argentina’s economic crisis has also dealt a blow to Brazil, particularly to the country’s auto-exporting sector. Argentina is Brazil’s third biggest export market after the United States and China.

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Although Brazil has continued to devise new plans to reverse its economic fortunes, the weak international market leaves little room for the Latin America’s biggest economy to get out of recession.

Narayan Ammachchi

News Editor for Nearshore Americas, Narayan Ammachchi is a career journalist with a decade of experience in politics and international business. He works out of his base in the Indian Silicon City of Bangalore.

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