BRASÍLIA: Brazil’s recession deepened in the third quarter, with analysts saying it is the country’s worst economic crisis since the Great Depression, as political gridlock and a giant corruption scandal have halted investment and forced consumers to pare their spending to the bone.
Gross domestic product shrank 4.5% in the third quarter from a year earlier, the biggest contraction since Brazil started measuring GDP using the current system in 1996, Brazil’s statistics agency said Tuesday. The figures were dismal across the board and have already led economists to cut their forecasts for 2016.
“That report reads like an obituary,” said Andre Perfeito, chief economist at Gradual Investimentos in São Paulo. “There were no positive signals in this for the Brazilian economy in the next few quarters, and we still can’t say we’ve hit bottom.” Mr. Perfeito added that he cut his GDP forecast for next year to a contraction of 3% from 2%.
Much of the slowdown can be pinned on a political crisis that has stalled the passage of austerity measures in Congress needed to shore up Brazil’s fast-deteriorating finances.
President Dilma Rousseff has grown increasingly unpopular, with approval ratings of about 10% in several polls and opposition lawmakers clamoring to impeach her. That has made it harder for her to convince lawmakers to support the unpopular measures. Meanwhile, a blockbuster corruption probe centered on state-run Petróleo Brasileiro SA, or Petrobras, is distracting lawmakers, dozens of whom are under investigation for allegedly taking bribes from suppliers.
The dysfunction deepened last week with the arrest of Delcídio do Amaral, Ms. Rousseff’s point man in the Senate, following allegations that he plotted to bribe a key witness in the corruption probe to leave the country. Mr. Amaral is viewed as one of the few ruling party lawmakers capable of helping Ms. Rousseff get her austerity measures through Congress. A government official said the arrest was “disastrous” for economic policy. The senator has denied any wrongdoing.
Brazil’s bleak economic performance is a disappointment to many observers, who at the start of the year had hoped President Rousseff would be able to contain a gaping budget deficit and set the stage for a recovery by year-end. Instead, fiscal reform hit a wall in Congress, the recession deepened, tax revenue fell and inflation accelerated, forcing the central bank to raise its benchmark interest rate to a growth-stifling, nine-year high of 14.25%.
Consumer and business confidence have plummeted, fueling layoffs and cutbacks. Unemployment recently hit a six-year high of 7.9%.
“This could be the longest and deepest contraction since the 1930s,” said Luciano Rostagno, an economist at Votorantim Brokerage in São Paulo. “It’s just decline after decline in investment. That reflects the high level of pessimism about the economy in every sector.”
Falling oil prices and the growing corruption scandal at Petrobras have forced the state-controlled oil company to slash its investment spending. Before the scandal came to light, Petrobras represented about 10% of total investment in the country, so its deep cutbacks have a broad effect on the economy.
The government is also slashing investment as it struggles to shrink the country’s growing deficit. Spending on a showcase infrastructure program, known as PAC, fell 41% through the first 10 months of 2015, compared with the same period a year before. Still, the central bank said the budget gap for the 12 months through October reached 9.5% of GDP.
Pessimism is growing. Roberto Terracini, 51 years old, is part-owner of a company that makes plastic wrap for various industries, including auto parts, cosmetics, food and pharmaceuticals. Many of his competitors have gone under in the past year, he said, but he is struggling even with the new customers he has gained as a result.
The prolonged downturn, paired with 12-month inflation at 10% and rising unemployment, has reduced consumers’ buying power. Shoppers are cutting back on everything from hairdressers to restaurants to Christmas purchases as they see the economy unravel.
Until last year, she used to sell 600 chilled coconuts a week, hacking of their tops with a machete so that customers can drink the water inside. She said that number has fallen to less than a hundred a week, despite recent sweltering heat in the capital. “Honestly, my friend, business is a catastrophe, a total disaster…If I don’t sell, I can’t buy” presents, she said.
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