Brazil’s economy not out of the woods yet
August 26, 2016, 5:25 pm

Inflation remains at near 9 per cent while interest rates are at 14.25 per cent, their highest in 10 years [Xinhua]

According to the Ministry of Labour, there are currently 11 million workers unemployed.

Government statistics show that in the past year the economy has lost more than 1.7 million jobs with over 94,000 jobs having been cut in July. In June, the economy lost 91,000 jobs.

While that figure is less than half of the job cuts in July 2015 it still poses a worrying challenge for a government that is trying to emerge from a deep recession.

Brazil is an emerging market and, like others of its caliber, it enjoyed a significant economic boom while G20 countries such as the US and Germany reeled from the impact of the 2008 global financial crisis.

But since 2014, Brazil has slipped into its worst recession since World War II. The economic dividends from the boom were quickly erased as the government grappled with runaway inflation and GDP contraction.

The inflation rate jumped from around six per cent in 2014 to nine per cent in 2016, much higher than the ideal 4.5 per cent rate. The Central Bank has gradually increased interest rates to a whopping 14.25 per cent – the highest since 2006.

The high inflation rate adds insult to injury for the millions unemployed and both are a double whammy to a government that has nevertheless spent billions on holding an international sporting event, the Olympic Games.

The government must implement unpopular austerity measures – including pension reform – to curb runaway public spending and cut the budget deficit, whether Rousseff survives her impeachment or her vice-president Michel Temer continues as president until 2018.

Nevertheless, with increasing capital leaving Europe toward emerging markets and the Brazilian currency gaining significant ground against the dollar this year, some economists believe that the country will start to turn the corner in 2017.

Now, the IMF says that confidence in the Brazilian economy is slowly reawakening. It said that Brazil’s contraction (3.8 per cent) in 2016 would moderately subside to (3.3 per cent) in 2017. It forecast positive growth for Brazil in 2017 but voiced concern over ongoing corruption and political scandals which have rocked Brazil.

The question right now is whether the political environment will stabilize following the end of Rousseff’s trial next week.

The embattled president has vowed to hold a referendum on early elections should she win her impeachment trial.

The BRICS Post with inputs from Agencies