Brazil GDP Q4 2015

Brazil

Brazil: Recession continues in Q4, largest contraction in over a decade tallied in 2015

March 3, 2016

Brazil’s GDP recorded another deep contraction in the fourth quarter of 2015, as Latin America’s largest economy faces a perfect storm of high inflation, depressed confidence levels and low prices for export goods. GDP tumbled 5.9% in Q4 over the same quarter of the previous year, which marked the largest contraction since the modern series began in 1996. The result was worse than market analysts’ already pessimistic expectations of a deterioration to a 5.0% decline and exceeded Q3’s 4.5% fall.

Q4’s downturn came on the back of depressed domestic demand, which is highlighted by a large drop in private consumption. Private consumption contracted 6.8%—the worst result on record—which followed Q3’s 4.5% drop. Households’ spending power has suffered from high inflation and a weak real as well as high unemployment levels. Government consumption deteriorated notably, dropping 2.9% from Q3’s slight 0.4% contraction. President Dilma Rousseff has been trying to drastically cut government spending to correct the government’s fiscal accounts, which have been squeezed by collapsing tax revenues, however, a hostile Congress has impeded many of her efforts. Fixed investment also worsened in Q4 contacting 18.5%, which marked the worst result on record. Investors likely held off from spending in Q4 as business confidence lingered at record lows and corruption scandals coupled with a move to impeach Rousseff increased uncertainty.

On the external side of the economy, the picture was a little brighter. Growth in exports of goods and services picked up notably from 1.1% in Q3 to 12.6% in Q4, which marked the best result since Q4 2010. The result suggests that the depreciated vale of the real is helping exporters. Meanwhile, imports deteriorated to a 20.1% contraction (Q3: -20.0% year-on-year). As the depreciated value of the real has pushed subdued demand down even further.

On a quarterly basis, the economy contracted 1.4%, which was a slight improvement from the 1.7% decline tallied in the previous quarter. For the full year 2015, the economy fell 3.8%, the largest drop since the current series of data began in 1996 (2014: -0.9%). The poor result will step up pressure on the government to reverse the economy’s trajectory.

Brazil’s outlook is grim. The economy is expected to record another deep contraction this year amid slow reform momentum. LatinFocus Consensus Forecast panelists expect the economy to contract 2.9% in 2016, which is unchanged from last month’s estimate. For 2017, the panel sees the economy growing 0.8%.


Author: Angela Bouzanis, Senior Economist

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Brazil GDP Q4 2015

Note: Quarter-on-quarter changes of seasonally adjusted GDP and year-on-year variation in %
Source: Brazilian Institute of Statistics and Geography (IBGE) and FocusEconomics Consensus Forecast.


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