Thursday, March 3, 2016

4 causes the collapse of the largest economy in Latin America – BBC World

Customers choose  merchant & # xed , to a fruit and vegetable  market in Brazil. Image copyright Thinkstock
Image caption Brazil’s economy had in 2015 its worst recession in 25 years, affecting from families to large companies.

If there was any doubt that Brazil is going through its most ferocious economic crisis in decades, Thursday was buried at all: the South American giant announced its GDP contracted 3.8% during 2015, the biggest recession in a quarter century.

the news disclosed by the Brazilian Institute of Geography and Statistics (IBGE) left open a question response uncertain: will grow back when the largest economy in Latin America

experts predict that Brazil’s GDP will back 3.45% in 2016, marking the first time that the country spends two consecutive years recession from 1930 to 1931, when the world felt the effects of the Great Depression.

Brazil ranks as one of the countries that had the worst economic performance in 2015 at the regional level (after Venezuela) and BRICS club emerging nations (which also includes Russia, India, China and South Africa).

with his approval rating across the floor, Brazilian president Dilma Rousseff said recently that the crisis is due to internal problems and external, such as drought last year or instability in the Chinese economy.

Image copyright AFP
Image caption Dilma Rousseff: Brazil’s president believes that economic problems respond to external factors in addition to domestic problems.

After learning of new data on the Brazilian contraction in 2015, the worst recorded since 1990 (when it was 4.3%), Brazil’s Communications Minister said that ” the economy will recover. “

Edinho Silva said maybe the measures taken by the government to create conditions for growth this year, but declined to indicate a certain date for the rally.

several economists argue that, beyond China and falling prices of raw materials affecting the region in general, there are structural factors behind the sharp decline of the Brazilian GDP.

BBC World presents him four causes of that crash.

“exhausted Model”

the striking economic expansion in Brazil in the past decade, which reached 7.5% 2010, was based largely on an increase in consumption of families, now plummets.

“that model was exhausted,” said Luciano Rostagno, chief strategist at Bank Mizuho do Brasil, told BBC World.

Image copyright AP
Image caption Brazilian consumption fell in 2015 after 11 years of growth, affecting activity in general.

In his view, the difference is that before the unemployment rate was so high in Brazil that government measures to stimulate consumption, such as raising the minimum wage, tax exemptions and subsidies for the purchase of goods- managed to move economic activity.

“the problem is that when the job market happened to be squeezed by an employment rate low, began generating inflation “Rostagno said. “And the government doubled the bet: he tried to control inflation by way of administered prices, which generated a huge fiscal problem.”

The cut investment and the loss of competitiveness of the industry by rising costs of production activity weakened, leading the country to the current downward spiral, concludes the analyst.

it is estimated that Brazil Pedius 1.5 million formal jobs last year.

the official data released Thursday say the consumption of Brazilian homes fell 4% in 2015, after 11 straight years of increase.

“political crisis”

Some experts say that the mother of the economic recession in Brazil is the political crisis that has erupted in the country, with an intense struggle between the government and Congress.

Brazilian businessman Odebrecht is accused in corruption scandal linked to Petrobras

“Today the most important economic problem is not tax,” says Margarida Gutierrez, a professor of macroeconomics at the Federal University of Rio de Janeiro (UFRJ).

Image copyright ABr
Image caption The tension between Congress and the Brazilian government is seen as a key to economic disaster.

According to Gutierrez, if Brazil had a better political environment and would have measures in place to restore dynamism to the economy.

“But as the government does not has an allied base (in Congress) fails to approve any tax reform that indicate a light at the end of the tunnel or a possibility of regression of the primary deficit to two, three or five years, “he says.

“corruption”

Another problem that experts say is sinking the Brazilian economy is corruption, with a bribery scandal in the state oil company Petrobras splashing well beyond the government.

the Petrobras itself, once hope Brazilian development by large oil reserves found in the depths of the Atlantic, cut 25% (US $ 32,000 million) investment plan between 2015 and 2019.

“reducing investments Petrobras has a very large impact on economic growth,” says Luciano Losekann, a specialist in industrial economics from the Federal Fluminense University (UFF) in an interview with BBC World.

Image copyright Reuters
Image caption in the midst of a corruption scandal, Petrobras has sharply cut back their investments.

The corruption scandal has also committed to the largest Brazilian engineering and construction, as Odebrecht, Andrade Gutierrez and OAS.

Are firms used to run large infrastructure projects, which drove the Brazilian GDP, but now dealing with arrests and prosecutions of those who were its executives.

the official results released Thursday show that during 2015 the contraction in the Brazilian industry was . 6.2% and 2.7% services over the previous year

Only the agricultural sector recorded a rise in activity, albeit slight. 1.8%

“Crisis of confidence”

economists also point out that Brazil has been adversely affected by a deterioration in market confidence in its economy.

a reflection of this was the recent decision of the major international credit rating agencies to terminate the investment grade country, a precious seal of good payer who had given him in the past decade.

Image copyright Thinkstock
Image caption Investing in Brazil?

As the government Rousseff lost revenue from taxes and borrow money from higher to fight inflation interest, gross public debt in Brazil increased in relation to GDP: reached 66% in 2015 and projected that this year will continue to grow.

official data on Thursday showing ten consecutive quarters of decline in investment in Brazil, which only in the last three months of 2015 had a decline of 4.9% over the previous quarter.

According to experts, this is not only due to cut investments Petrobras and the state in general, but also the industrial confidence index collapsed to the lowest level since 2001.

“There is a crisis of confidence in companies and businesses, paralyzing investments,” he says Gutierrez told the BBC.

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