Nearshore Americas

Rising Inflation Sees Brazil’s Economic Growth Slow to a Crawl

Analysts have cut their forecasts for Brazil’s 2014 economic growth from 0.48% to 0.33%, dealing yet another blow to president Dilma Rousseff, whose political prospects hinge heavily on the country’s economic growth.

The latest forecast by Brazil’s Central Bank  is the median of forecasts by about 100 financial institutions.

Brazil’s economy has been slowing over the past few years, largely due to rising inflation and unemployment. Analysts also cut their 2015 growth forecast for South America’s largest economy from 1.1% to 1.04% last week.

Hosting this year’s FIFA World Cup and the 2016 Olympic Games was supposed to boost the Brazilian economy, but despite several stimulus programs and the government’s huge investment on infrastructure, Brazil’s economy has worsened rather than improved.

The first cracks appeared in 2011, when output slid to 2.7% from a staggering 7.5% in the previous year. The following year, growth slowed down further. Today, some analysts believe that Brazil has already entered a recession.

Though output has shrunk, the economy has continued to create jobs. In 2013, 1.49 million jobs were created, an increase of 250,000 from the previous year, according to data released by the country’s Labor Ministry. But this is small growth by Brazil’s standards.

These economic setbacks have severely damaged President Dilma’s electoral prospects. Recent pre-poll surveys predict that the Socialist Party’s nominee Marina Silva will defeat Dilma in next month’s presidential elections.

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Rising fuel prices, which seem to be the primary cause of the sudden rise in consumer prices, are a particular matter of concern in Brazil. Inflation is a sensitive issue because hyperinflation held back Brazil’s growth for years in the 1980s and 1990s.

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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