Brazil economy shrank sharply during 2015

Brazil economy shrank sharply during 2015

Posted on Posted in Economy, News

Brazil, world’s seventh-largest economy, contracted sharply in 2015 (around 3.8%) as businesses slashed investment plans and laid off more than 1.5 million workers setting the stage for country’s worst recession on record. This was due partly to low commodity prices and sluggish global growth.

In late 2014, Brazil seemed on the verge of a meltdown. Its economy had grown a mere 0.1 percent that year, as its currency (the real) dropped like a stone and business confidence plummeted.

Slums in Brazil
Slums in Brazil

A paralyzing political crisis, rising inflation and interest rates and a sharp drop in prices of key commodity exports have formed a toxic cocktail for Latin America’s largest economy. The disastrous burst of a major mining dam and the biggest oil strike in 20 years added further strain in 2015.

Major Causes of Brazil Economic Crisis

Brazil was only a partial participant in the neoliberal wave that swept much of Latin America throughout the 1980s and 1990s, in the wake of a regional debt crisis brought on by governmental borrowing sprees during the 1970s and the increase in interest rates in the 1980s. Compared to those of its neighbors, Brazil’s reforms were rather heterodox and limited. The state kept a majority stake in two of the country’s largest government entities: mining company Vale and massive energy company Petrobras.

Brazil struggles with corruption aside, the Brazilian economy also suffers from its disproportionate dependence on one fragile market: its own. Unemployment and loan delinquency rates are likely to rise further this year as the recession drags on.

BRICS

What a contrast with the optimism of the 2000s. That was when the term BRICS was coined, covering the largest emerging economies, including Brazil, which were seen as major contributors to global economic growth.

Among the group today, India is still performing strongly, but China has slowed. Russia’s economy contracted by a similar amount to that of Brazil last year, and South Africa – a later addition to this group – managed a very lacklustre 1.3% growth last year.

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