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Brazil's economy has been blasted back to the financial crisis

Brazil storm kid floodReuters

Economic indicators are flashing danger in Brazil.

Activity in the country’s service sector is at its lowest level since the depths of the financial crisis, according to data from Markit Economics.

Meanwhile, economic activity is falling at almost 5% a year, according to research firm Reorient.

Couple that with a scandal-ridden president with a 7% approval rating and a major commodities slump, and what you’ve got are the ingredients for economic disaster.

“The overall scenario… remains bleak,” wrote Pollyanna De Lima, an economist at Markit.

“The combined output of the manufacturing and service sectors suffered the largest fall since early-2009. Weak demand, high interest rates, fiscal tightening, strong inflation and rising unemployment are expected to continue to hamper activity in forthcoming months.”

Like most disasters, this one has been years in the making.

The major inflection point, though, came this fall when President Dilma Rousseff narrowly won reelection in the midst of a multi-billion graft scandal at quasi-state oil company, Petrobras. The scandal reached into the highest levels of government and Rousseff’s party, and politicians once thought untouchable are now under investigation.

And to make matters worse, commodities prices started to fall to levels not seen since the early 2000s.

The Bloomberg Commodities Index is now down over 12% year to date. And Brazil, a major exporter of oil and iron ore, has really started to feel the burn.

Bloomberg commodities indexBloombergThe Bloomberg Commodities Index

And here’s a few more worrisome data points:

“With US$900 billion in foreign debt and massive internal as well as external deficits, and a left-wing president facing possible impeachment, Brazil looks a lot shakier than it was in 2008,” writes David Goldman, an analyst at Reortient Financial Markets.

It’s hard to imagine of anything worse than that time. But we may have to.

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