Brazil

Brazil: continued recession

The economic recession is likely to continue in 2016, driven by political noise and a low investors’ confidence level. The performance of Brazil’s economy has been poor, with the EPI score projected to be 76.9%, or a D grade, in 2016.

During 2015, the Brazilian economy slipped into a recession, inflation and unemployment soared and Brazil lost its investment-grade sovereign credit rating. Brazil’s currency real lost more than half of its value in the past two years, pushing inflation to 8.9% in 2015 and making the recession more severe.

Still, inflation is likely to slow down to 6.3% in 2016, but will stay elevated. The fiscal position of the government has been negatively affected but the low GDP growth, pushing the budget deficit 7.2% in 2016. Unemployment is projected to increase from 6.6% in 2015 to 8.6% in 2016, driven by the second-year recession in the economy. Real wages have started going down, driven by high unemployment rates and elevated inflation.

Brazil’s policy makers have struggling to control the increasing inflation without further constraining the weak economy. The government faced renewed pressure to moderate austerity proposals aimed at bolstering public accounts and avoiding further credit downgrades. The recent impeachment proceedings and the corruption scandal have also been hindering approval of economic policies in the parliament.

The 5-Minute Economist projects Brazil’s EPI score to improve gradually to about 88%, or a C level, by 2020, with gradually improving GDP growth and decreasing inflation and unemployment rates.