Gloomy outlook for Brazilian economy
Brazil is faced with major economic problems and the situation has got even worse in the past weeks. The country is plagued by corruption scandals at a time when the economy has plunged in the worst recession for a quarter of a century. In addition to this chances are slim that the turning point has yet been reached. The country's GDP is in free fall, inflation is in double figures and unemployment has doubled over 12 months. President Dilma Rousseff, who is embroiled in a corruption scandal, is encountering strong resistance in the parliament of opposition leader Eduardo Cunha, who in his turn is also namedin the scandal surrounding oil company Petrobras. Political feuds have made the country difficult to govern.
Huge debt problem
An often underestimated problem is that of public debt. Barclays has warned that these debts will push the economy deeper into recession. The macro-economic indicators are quickly deteriorating. Inflation has reached double figures for the first time in 10 years, unemployment has nearly doubled in the past 12 months. The Brazilian economy is clearly in a stagflation scenario. This is a nightmare for the central bank of the country, which has no prescription to help improve growth.
Barclays is particularly concerned about the debt problems. Brazil is financially confronted with huge challenges, and there is a risk that the country will not be able to repay its debts in the long term. But the biggest danger is a contagion towards the other emerging markets. In the worst case this could lead to a new financial crisis. Brazil is also a country that exports raw materials and prices for those commodities are currently extremely low. And it looks very unlikely we may expect an improvement in the weeks or months to come. The Brazilian economy will probably sink even further before the bottom is in sight. | 02/12/2015 | Jos Sterk