Brazil facing economic depression

Brazil’s economy plunged by -3.8% in 2015, posting its largest decline since 1990 as a slump in commodity prices, rising inflation and interest rates – along with a major corruption scandal and worsening political crisis – took their toll on activity. GDP data for Q4 2015 showed the economy contracting by a seasonally adjusted -1.4% (q-o-q) while in y-o-y terms output shrank by a hefty -5.9%, significantly steeper than the -4.5% drop registered in the prior quarter. Reflecting the slump in Q4 GDP growth, household consumption and gross fixed investment posted heavy losses of -6.8% (y-o-y) and -18.5%, respectively. Furthermore, imports of goods and services continued to fall sharply (-20.1% y-o-y). The severity of last year’s recession, coupled with the fact that this year is not expected to be much better, has led to commentators suggesting that Brazil is facing an economic depression. With the fiscal deficit and national debt soaring, 2016 will remain extremely challenging for the government as it attempts to push through bold economic reforms to balance the public finances and restore investor confidence whilst the economy remains mired in recession.

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