2014 Brazilian economic crisis

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January 2016 cover of The Economist magazine about the crisis. The cover depicts then-current president Dilma Rousseff
Change in GDP from 2010 to 2016 in Brazil.[1] Growth slowed significantly in 2014 which was followed by two consecutive drops.

From mid 2014 to 2016, Brazil experienced a severe economic crisis. [2][3] The economic crisis became coupled with a political crisis in Brazil that resulted in the impeachment of president Dilma Rousseff and in widespread dissatisfaction with the political system.

In 2015, Brazil's gross domestic product (GDP) fell by 3.9% due to a drop in salaries, restrictions on credit and a rise in the basic interest rate. In 2016, Brazil's GDP fell by 3.6% with reductions across all sectors of the economy. It was the first time since 1931 that the GDP had fallen in two consecutive years. In the first quarter of 2017 the GDP rose 1.4%, finally ending the recession. [4]

Economic context[edit]

Brazil's economy depends on the exportation of commodities, especially iron ore, petroleum and soy. There was a significant increase in the price of those commodities from the late 1990s until 2012. That was due in part to the increasing demand of China. That period was, therefore, a favorable time in Brazil's economy. The left-wing government of Lula enjoyed the opportunity to redistribute wealth via welfare programs and by increasing the minimum wage, seeking to increase consumption.[5]

Causes[edit]

Slowdown of the chinese economy and fall in commodity prices[edit]

According to Steve Tobin, who works in the International Labour Organization (ILO), the decrease of the external demand, particularly from China, plus the fall in the prices of commodities, contributed to the crisis. However, according to Tobin, this unfavorable international scenario ended up revealing scructural weaknesses of the contry, such as low productivity.[6]

Silvia Matos, researcher in the Getúlio Vargas Foundation, a brazillian think-thank and university, concluded that external factors were responsible for 30% of the crisis.[7]

Errors in the macroeconomic policies[edit]

According to a minister of the cabinet of ex-president Lula, there was excessive spending and subsidies in Dilma's government, which generated an increase in the national debt and in the debt of families. Gustavo Franco, former president of the Central Bank of Brazil, affirmed that the causes of the crisis were entirely self-inflicted, and they were relatev to "faulty local macroeconomic measures that went wrong".[8]

Political instability[edit]

In the same year the crisis began, a major corruption scheme was discovered and was being investigated in the Operation Car Wash, which involved top politicians and huge companies, such as the oil giant Petrobras. It is estimated that Car Wash caused a contraction in the GDB of Brazil of 1 to 1.5%. [9]

Consequences[edit]

Unemployment[edit]

Before the recession, Brazil's unemployment rate hovered around 6.8% for most of 2014 and had been generally increasing since February 2015, averaging 8.5% in 2015. The economy lost more than 1.5 million jobs throughout 2015, fueling public discontent against the political establishment and the political leadership of the Worker's Party and President Dilma Rousseff.[10] The unemployment rate continued to rise throughout 2016 to finish the year at 12.0%, with 12.3 million people unemployed and an estimated 2.8 million private sector jobs cut over the preceding two years.[11]

Budget deficit[edit]

Brazil is currently experiencing a fiscal crisis and an increasing budget deficit which, according to Bloomberg, has been "the largest-ever primary budget gap ... as a two-year economic recession sapped tax collection while expenses grew further."[12] The government deficit reached 5.8 billion reais (U$1.7 billion) in the first three months of 2016, the widest reported since December 2001. The two-year fiscal deterioration can be explained by the decrease in government revenue from taxes as a result of the recession, while expenses from government have been growing constantly.[13]

Credit rating[edit]

This is a table of the credit ratings of the Brazilian economy according to Trading Economics.[who?][citation needed]

Agency Rating Outlook Date
Fitch BB negative May 5, 2016
TE 34 negative Apr 16 2016
Moody's Ba2 negative Feb 24 2016
S&P BB negative Feb 17 2016

Recovery[edit]

Henrique Meirelles, the Minister of Finance from May 2016 to April 2018.

Since the impeachment of Dilma Rousseff and the subsequent rise of Michel Temer to power a variety of projects, many of which seen as unpopular, were proposed in order to get the economy back on track. In early 2017, there were already signals that the economy was beginning to recover, however, it was agreed that the process would be long and slow.[14][15]

In June 2017, a 1% rise in GDP in the first quarter of the year was reported.[16] It was the first rise of the GDP after eight consecutive falls (two years).[17] Minister of Finance Henrique Meirelles said that the country had exited the "greatest recession of the century".[18] However, economists say that the growth characterizes only the end of the "technical recession" and that it is still too early to claim that the crisis is over, given that unemployment remains high and there's still widespread uncertainty regarding the future of the economy, especially in the aftermath of the recent political scandals.[19]

See also[edit]

References[edit]

  1. ^ "Economia encolhe 3,6% em 2016 e país tem pior recessão da história". Retrieved 6 June 2017.
  2. ^ "Michel Temer signs security decree to stem Rio violence". www.aljazeera.com. Retrieved 2018-02-16.
  3. ^ Barua, Akrur (29 April 2016). "Brazil: Yearning for the good times". Global Economic Outlook, Q2 2016. Deloitte University Press. Retrieved 21 May 2016.
  4. ^ Mu Xuequan (March 8, 2017). "Brazil GDP falls by 3.6 percent in 2016".
  5. ^ Giselle Garcia (15 May 2016). "Entenda a crise econômica". Agência Brasil. Agência Brasil.
  6. ^ "Crise internacional e problemas internos são causas do desemprego no Brasil". Agência Brasil.
  7. ^ FGV. A Crise de Crescimento do Brasil (in Portuguese). Elsevier Brasil. ISBN 9788535266382.
  8. ^ ""A crise brasileira não vem de fora, ela foi autoinfligida"". El País. 27 March 2015.
  9. ^ "A Lava Jato está corroendo o PIB. E daí?". Isto É Dinheiro. Editora três. 2017-06-02.
  10. ^ "Brazil's unemployment jumps in 2015, adding to Rousseff's woes". Bloomberg.
  11. ^ "Brazil's jobless rate ends 2016 at 12 percent with 12.3 million unemployed". Reuters. 1 February 2017.
  12. ^ "Brazil posts largest budget deficit for february ever". Bloomberg. Retrieved 18 May 2016.
  13. ^ "Brazil records worst ever first quarter budget deficit". Bloomberg. Retrieved 18 May 2016.
  14. ^ "Recuperação da economia brasileira será longa e lenta, aponta 'FT'".
  15. ^ "Recuperação da economia brasileira ainda é lenta, diz presidente do Itaú".
  16. ^ "PIB do primeiro trimestre cresce 1% após oito quedas seguidas". Jornal Nacional. 2017-06-01. periódico.
  17. ^ "PIB do Brasil cresce 1% no 1º trimestre de 2017, após 8 quedas seguidas".
  18. ^ PIB sobe 1% no 1º trimestre, após oito quedas consecutivas
  19. ^ "PIB positivo é 'saída técnica' da recessão, mas recuperação é incerta; entenda". Retrieved 5 June 2017.