Brazil slides into recession

29 Aug 2015 | Author: | No comments yet »

Another big decline in GDP.

BRAZIL’S GDP shrank by 1.9% in the second quarter of 2015 compared with the previous quarter, the biggest decline by that measure since 2009. RIO DE JANEIRO: If the worst economic crisis in a decade, a massive corruption scandal centered on her ruling party and approval ratings in the single digits weren’t rough enough for Brazilian President Dilma Rousseff, she’s now faced with growing calls for her impeachment.

Eduardo Cunha, the powerful speaker of Brazil’s lower house of Congress, is Rousseff’s sworn enemy and has been charged by her attorney general with taking millions in bribes in connection with a sprawling corruption scandal at state-run oil company Petrobras. He’s also the man who can call for an impeachment vote in the Chamber of Deputies against the president, an action that two-thirds of Brazilians say they want to see happen, according to polls. “Dilma is walking on the high wire without a net,” said Eliane Cantanhede, one of Brazil’s best-known political commentators for the Estado de S.

The drop was slightly larger than consensus forecasts of private economists published by the Central Bank, and prompted many to take an even gloomier view or prospects for the globe’s seventh-largest economy. “We are nudging down our forecast and now think the economy will contract by 2.5 percent this year,” the London-based firm Capital Economics wrote in a Friday research report, noting that previously it forecast a 1 percent drop. “As expected, the driver was a complete collapse in domestic demand … Paulo newspaper and Globo television. “Nobody knows what Cunha is going to do, and this situation is a double-edged sword for Dilma.” Cunha, an avowed obstructionist to important economic and political reform measures Rousseff needs to push through Congress, was weakened after federal prosecutors charged him last week with corruption, which “may be good for Dilma, because he’s losing the political backing to push through impeachment,” Cantanhede said. “But as a weakened figure, he also becomes a political suicide bomber, because nobody knows what he’ll tell prosecutors,” she added. “Nobody knows what he knows.” She’s not been accused of wrongdoing in the Petrobras case, in which dozens of federal deputies, senators and other top political figures are under investigation, along with some CEOs of Brazil’s top construction and engineering firms who are already jailed. This is a shocking report.” Like most Latin American nations, Brazil has been hurt by the plunge in commodity prices and the slowdown in China, which has been a big buyer of Brazil’s soy, iron ore and other commodities.

Prosecutors allege the kickback scheme involved roughly $2 billion in bribes paid by companies in return for grossly inflated building contracts over more than a decade. However, Brazil’s economy depends far less on trade than most nations in the region, with exports and imports making up just 27 percent of GDP according to the World Bank. But with an economy in recession, along with growing inflation and unemployment, Rousseff has the worst approval rating for any president since Brazil’s return to democracy in 1985. She pushed curbs on payroll-tax breaks through Congress, which will help cut the fiscal deficit; the government also said it would close ten of its 39 ministries. Analysts are worried by recent reports that her vice-president, Michel Temer, a member of the PMDB, is giving up the job of co-ordinating the government’s dealings with Congress.

Rising inflation, unemployment and tightening personal credit have added to souring consumer confidence. “I know that we’re passing through difficulties. Many of you are scared, you think that we’re in an uncertain situation, you feel that inflation is still too high and you fear losing your jobs,” she said. “I want to say that my government thinks of two things: In how to increase employment, to guarantee that the country returns to growth, and in how to reduce inflation, because we know that inflation erodes the income of the worker.” Inflation for the 12 months ending in July stood at 9.56 percent, the government reported earlier this month.

On GDP, the government’s IBGE bureau said the biggest second-quarter drop took place in the industrial sector, where construction output fell 8.4 percent. Since then, most of the firms in the construction sector have been shut out of credit markets and are cash-starved and unable to complete projects or begin new ones.

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