Brazil’s economic woes continue as the country’s worst-ever recession unexpectedly deepened at the end of last year. Gross domestic product contracted by 0.9% between October and December. For all of 2016 it dropped by 3.6%; almost as bad as in 2015 with a 3.8% slump. It was the eighth straight quarter of contraction.
Against a background of political turmoil and corruption scandals, the two-year downturn is now the longest and deepest on record for Latin America’s biggest country, according to the country’s stats agency IBGE.
The economic contraction worsened in the fourth quarter, with a steeper-than-expected decline of 0.9 percent, following a 0.7 percent drop in the previous three months.
Investment fell 10.2% and consumption was down by 4.2% as joblessness hit a record high with nearly 13 million people unemployed – 12.6% of the formal workforce.
Brazil has been shaken by a slump in prices for its oil, soy, metals and other commodity exports, as well as political instability and a huge corruption scandal.
Finance Minister Henrique Meirelles said after the figures were announced that Brazil is still feeling the effects of the recession but is “clearly” starting to grow.
The downturn contributed to the impeachment of former President Dilma Rousseff last year and to the low approval ratings of her successor, President Temer.
The economy got little boost from the Olympic Games being held there and many of the venues and installations build at huge expense have since been abandoned.
Experts are forecasting Brazil’s economy will grow only slightly this year. The consensus is for a very slow rate of 0.5%, which would be insufficient to reduce unemployment.
But some are not sure it can achieve that. “We see zero growth in 2017, or maybe just a little bit above that,” said Carlos Kawall, chief economist at Banco Safra, in São Paulo. “We should not see any big recovery this year. We will have to wait until 2018.”
Worst Two Years
Data released by the Brazilian Institute of Geography and Statistics (IBGE) confirm the second straight year of recession in the country. The 7.2% drop in the 2015-2016 biennium was the biggest on record.
GDP reached BRL 6.3 trillion in 2016. The IBGE said 2015 and 2016 numbers combined represent the gravest recession since 1947. IBGE Regional Accounts coordinator Rebeca Palis explained that 2016 contraction was not the worst on record for a single year, but the economy had never slipped by 7.2% in a biennium.
“The magnitude of the decline, looking at the biennium, is the biggest since 1948,” she said, adding that record-keeping by the IBGE began in 1947. Therefore, data on year-on-year variations is only available from 1948 onwards.
“At other points in time, some economic activities kept the economy from sinking further. In this biennium, it was a widespread phenomenon, which is not very usual. Services were affected, which didn’t happen much in the past,” she said.
The two-year downturn brought GDP back to Q3 2010 levels, the IBGE reported. Q4 2016 saw GDP shrink by 0.9% from Q3, and by 2.5% from Q4 2015.
The sector of the economy that weathered the strongest blow was agriculture and livestock farming, down 6.6%. Industry activity dropped by 3.8%, with services going down 2.7%, according to the IBGE.
In Q4 from Q3 2016, activity was down 0.7% for industry and 0.8% for services. Agriculture and livestock was up 1% in this comparison.
Year-on-year in Q4, all sectors shrank, including a 5% decline in agriculture. Industry and services slumped by 2.4%.
Throughout 2016, the poor performance in agriculture and livestock came mostly as a result of agriculture. Industry was held back by a 5.2% decline in construction and a 2.9% drop in mineral extraction. Activity increased by 4.7% in electricity and gas, sewage and urban cleaning services.
Weighing down on services were a 6.3% drop in trade and a 3.1% drop in the ‘other services’ category. Real estate activity increased by 0.2%.