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Brazil’s worst recession ever deepened in late 2016, GDP data shows

LiveMint logoLiveMint 07-03-2017 Silvio Cascione

Brasilia: Brazil’s worst recession ever intensified in the final months of 2016, data showed on Tuesday, frustrating hopes of an imminent rebound despite stimulus measures including a rapid fall in central bank interest rates.

Brazil’s gross domestic product (GDP) contracted by 3.6% in 2016, statistics agency IBGE said on Tuesday, following a 3.8% drop in 2015. The nation’s two-year downturn is the longest and deepest on record for Latin America’s biggest country.

The economic contraction worsened in the fourth quarter, with a steeper-than-expected decline of 0.9% after seasonal adjustments, following a 0.7% drop in the previous three months

The recession has left nearly 13 million people unemployed and caused a record number of bankruptcy filings.

It also contributed to the impeachment of former President Dilma Rousseff last year and to the low approval ratings of her successor, President Michel Temer.

Temer’s agenda of budget and pension reforms has helped fuel a strong rally in Brazilian equities and currency since last year.

Investment fell 10.2% in 2016, in a sharp drop that is partly blamed by economists on Brazil’s chronically high interest rates.

The central bank started to cut its benchmark rate from a decade high of 14.25% in October and is now expected to take them to single digits this year.

Household consumption fell 4.2% as joblessness hit a record high, while government spending dropped 0.6%.

The majority view among economists is that Brazil will emerge from recession in 2017, but at a very slow rate of 0.5%, which would be insufficient to reduce unemployment.

Although this recession has been the deepest in Brazil’s history, it has not been marked by the financial upheaval seen in other crises in the country’s turbulent economic past.

Previous downturns were often accompanied by debt crises, capital flights and hyperinflation, none of which happened during the current slump. Reuters

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