Brazil recession worst in country’s history

- Reuters, BRASILIA

Mar 8, 2017-

Brazil’s worst-ever recession unexpectedly intensified in the final quarter of 2016, data showed on Tuesday, frustrating hopes for signs of a recovery and stepping up pressure on President Michel Temer and the central bank to do more to stimulate growth.

Brazil’s gross domestic product contracted by 3.6 percent in 2016, statistics agency IBGE said, following a 3.8 percent 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 percent following a 0.7 percent drop in the previous three months. 

Investment fell 10.2 percent 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 percent in October and is now expected to take them to single digits this year.

The disappointing data fuelled calls for the central bank to accelerate the pace of rate cuts from 75 basis points per meeting. Yields on rate futures showed a 22-percent chance of a steeper cut in the bank’s next policy decision in April, according to Reuters data. “There’s a lot of idle capacity in the economy and that’s a reason for the central bank to move faster,” said Cristiano Oliveira, chief economist at São Paulo-based Banco Fibra, responding to Tuesday’s data.

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

Finance Minister Henrique Meirelles said after the figures were announced that Brazil is still feeling the effects of the recession but is “clearly” starting to grow.

Published: 08-03-2017 09:09

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