“Pretty Soon We Have to Start Labeling this a Depression”: Goldman Sachs on Brazil
Brazil, the largest economy in Latin America, now the 8th largest in the world, down from 6th place during the glorious BRICs days of 2011, is sinking deeper and deeper into trouble.
An epic corruption and kickback scandal surrounding state-run oil company Petrobras is spreading up the government pyramid to the highest levels – a week ago, the government’s Senate leader was arrested for allegedly trying to meddle in the investigations. As the scandal is metastasizing, political decision-making is gridlocked, and the confidence of consumers and businesses has been demolished.
The budget deficit is ballooning as the economy is spiraling down. On Monday, the government imposed a partial shutdown and froze discretionary spending. Standard & Poor’s has slashed Brazil to junk, citing government finances, the political mess, and the deepening economic nightmare. Moody’s and Fitch still rate it just above junk, with their downgrade fingers itching to pull the trigger.
All this comes at the worst possible moment for the economy. GDP fell 1.7% in the third quarter, the national statistics institute (IBGE) announced today. Year over year, GDP plunged 4.5%, the sixth contraction in a row, and the worst since the beginning of modern records in 1996.
“There is no room for any growth in the coming quarters,” Andre Perfeito, chief economist at Gradual Investimentos in Sao Paulo, told Bloomberg. “The situation is really, really bad,” he said, likening the GDP report to “an obituary.”
This is what Brazil’s annualized GDP growth rates look like for the past 12 quarters:
The economy was dragged down at all corners. Manufacturing fell 3.1%. Business investment dropped 4%, down for the ninth quarter in a row. But this year, even consumer spending is plunging, whacked by rising unemployment – now at 8.9%, according to the official unemployment rate – and soaring inflation, now over 10%, which is sapping the purchasing power of the lucky ones that still have jobs.
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