There’s no way around it: Brazil is a disaster.
In a report to clients on Friday, economists at Deutsche Bank took a detailed look at South America’s flagging economy and found that any way you cut it up, things are not good.
In recent weeks, the government has seen its debt rating cut to junk, and in response it introduced a $US17 billion austerity package that will freeze public hiring, cut about 1,000 jobs, and eliminate 10 ministries altogether.
As the AFP outlined in a report earlier this week, Brazilian president Dilma Rousseff has now been “painted into a corner” as she deals with a recession, inflation rising sharply, unemployment soaring, and corruption allegations to boot.
In short, things are nightmare.
And in its report Deutsche Bank said Rouseff may not be long for the presidency, writing:
The economic scenario remains very volatile, as the recession and the political crisis continue to feed each other. President Dilma Rousseff is becoming increasingly isolated, and with unemployment still rising and no recovery in sight, more bad news on the economic front (e.g., another downgrade) could further boost the opposition’s movement for her impeachment. While this is still not the most likely scenario, we believe the probability that the president will not be able to finish her mandate in 2018 has risen to approximately 40% — a significant risk.
This, of course, would bring further hardship to the country’s economy and more volatility to financial markets, which have also seen significant pressure due to the slowdown in China — Brazil’s main export partner — and the appreciation of the dollar, which has weighed on the value of the real.
And if you take a quick look at the following charts — showing consumer and business confidence, unemployment rising, inflation soaring, expectations that Brazil could default spiking, and retail sales dumping — there is little to get excited about in Brazil.
Rousseff's 'new economic matrix' policies, which pursued a cut in interest rates and increase in fiscal spending crushed business confidence.
The unemployment rate is soaring and Deutsche Bank expects it will average 9% in 2016, up from 4.8% just two years earlier.
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