While three clueless politicians debate what’s the best way to go for the former Portuguese colony, GDP, income and production have shrunk in time for the Spring elections.
Porto Alegre – Brazil, the largest economy in Latin America and seventh in the world, technically entered into economic recession in the second quarter of 2014, according to figures released by the Government, and amid a disputed presidential election campaign that will end next October 5.
The Gross Domestic Product (GDP) of Brazil contracted by 0.6% in the second quarter of this year compared with the first and, after accumulating two consecutive quarters of negative growth, the country entered what economists consider “technical recession”.
The economy had already shrunk by 0.2% in the first quarter compared to the last three months of last year, according to data revised and published by the Brazilian Institute of Geography and Statistics (IBGE).
The last time Brazil posted two consecutive quarters of economic contraction was in early 2009, when it was suffering the effects of the international economic crisis.
Negative results limited to only 0.5% economic growth accumulated by Brazil in the first half of this year compared with the same period of 2013 and 1.4% accumulated in the last twelve months that ended in June of this year.
Negative data reinforced the arguments of political opposition candidates, who argue that the country’s situation is critical, with inflation rising and the economy in recession.
The president seeks re-election with a speech that highlights several positive economic data such as employment generation, and in which any difficulties attributed to the global crisis, a convenient scapegoat of clueless politicians and their zealots in the Brazilian government.
The announcement of the financial results in the second quarter are very different than those expected by the Government and coincides with new polls that suggest that Dilma Rousseff would be defeated in the runoff presidential election by the environmentalist Marina Silva, a harsh critic of the current administration.
Ms. Silva, however, is not better than Rousseff. She can only highlight her concerns with the environment without showing a clear plan to get Brazil out of the twisted economic path in which it has been for the last decade.
The government was quick to deny that the economy is in recession and said that the country will see an improvement in the second half. “Recession is when unemployment rises and income falls. Here the opposite has happened. In my opinion we are not in recession but a long standstill as in European countries, which carry several consecutive quarters with a stalled economy,” said Minister of Finance, Guido Mantega. Well, unemployment has risen and the growing inflation has indeed lowered purchasing power, so even as per Mr. Mantega’s standards, Brazil is in recession indeed.
According to official statistics from it can not be said that the country is in recession, because projections indicate that despite a sharp slowdown, Brazil will end this year with positive economic growth.
The minister admitted, however, that the quarterly results disappointed and that the Government will have to revise down its growth forecast, which is 1.8% for this year. Some of the slowest growing economies in the developing world are increasing economic activity by at least 2%, so Brazil will not only grow less, but it will grow less than the average if at all.
Financial market economists have reduced for thirteen consecutive weeks their growth forecast for Brazil this year and now place it at 0.7%.
These projections allow us to provide for a sharp slowdown this year after a slight recovery in 2013 and after having grown by 7.5% in 2010, the progress of the Brazilian economy plunged in 2011, when activity was set at only 2.7%. Then it fell further to only 1.0% in 2012 and 2.5% in 2013.
Experts attributed the contraction in the second quarter to the high number of holidays granted by the World Cup hosted by Brazil, which paralyzed factories, as well as the slowdown in household consumption, which grew by only 0.3%. Another reason they say is the significant drop in investment which only hit 5.3%.
Before the World Cup, the economy was already facing difficulties by rising inflation, which reduced the purchasing power of households and forced the central bank to raise the benchmark interest rate to 11% per year, its highest level in three years.
The rising cost of associated with borrowing money greatly reduced investment and caused a drop in business confidence to its lowest levels in several years.
According to Mantega, the holidays given due to the World Cup had a negative impact of between 0.2 and 0.3 percentage points in the GDP result. This was something well known before the event took place, yet, most companies, large and small decided to go about their business the “Brazilian way”.
The minister attributed the bad quarterly result to the international crisis, which he said continues to reduce the demand for Brazilian products abroad, and causes specific problems such as prolonged drought, which this year affected agricultural production and hydro power production.
Here in Brazil, government is champion when it comes to blaming mother nature and external factors for its failures. But it gets worse, since politicians have no strategy to deal with the economic downturn.
Luis R. Miranda is the Founder and Editor of The Real Agenda. His 16 years of experience in Journalism include television, radio, print and Internet news. Luis obtained his Journalism degree from Universidad Latina de Costa Rica, where he graduated in Mass Media Communication in 1998. He also holds a Bachelor’s Degree in Broadcasting from Montclair State University in New Jersey. Among his most distinguished interviews are: Costa Rican President Jose Maria Figueres and James Hansen from NASA Space Goddard Institute. Read more about Luis.