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Brazil’s Economy Slides Into Recession

Following years of speculation and reaping the benefits of its strong commodity based market; Brazil’s economy has fallen into recession just one month before the general election. In spite of hosting the World Cup, the country’s GDP fell by 0.6% in the three months to June, which is worse than analysts had initially expected. This turn for the worse for Brazil translatesinto a 0.2% fall in its economy for the first quarter of the year. A recession is normally defined as two consecutive quarters of contraction and the knock on effects of this plus up-coming Brazilian general election remains to be seen.

The Effect On Brazilian Politics

President Dilma Rousseff will not be sitting comfortably having survived the backlash of the World Cup and will soon be standing for re-election with the country entering a period of recession. A recent poll in Brazil revealed that President Rousseff would lose to her rival candidate, the environmentalist Marina Silva if October’s election went to a second round. Interestingly the World Cup was not regarded as good for business in Brazil as there were more days off for employees and many traditional tourists stayed away due to the inflated prices. The political problem stands that with the elections due to take place in early October this year, the economy is proving to be Rousseff’s weak point.

Brazil’s Unfortunate Slowdown

During the second quarter, civil construction, manufacturing and investment especially suffered and with the World Cup failing to lift Brazil’s economic output, people will be looking ahead to the 2016 Olympics as a make or break issue. Brazil entering a recession shows the direct effects and exhaustion of a growth model that has been heavily based on internal consumption. It is often easy to notice an economy that is going to suffer or is in a worrying state due to a slowdown in industry, a reduction in investment and rising inventories. Whoever wins the October election in Brazil will need to introduce deep economical reforms as any recovery made from its current state will be ever so slight. Brazil’s second quarter figures resulted in analysts revising down the full-year expectations for the country. Now Brazil finds itself in an unsavoury situation where in spite of moderate growth in the global economy, the Brazilian economy in 2014 is set to show no growth at all.

The Overall Picture

Proudly taking the first letter of the BRIC acronym, it was no less than a decade ago that Brazil was considered the star child of the emerging economies. Reaping the benefits of soaring commodity prices and with a government spending helping millions of poor Brazilians enter the ever-expanding middle class, Brazil’s neighbours and further afield admired at the country’s bright future. However, 10 years on and it’s a very different picture with falling investor and consumer confidence and struggling industrial output and retail sales. Although before the World Cup there was some civil unrest, the event temporarily distracted the Brazilians from the economic worries that were knocking at their doors. Just over a month is left until the presidential elections and the situation Brazil finds itself in today will be seen and exploited by Rousseff’s opposition, looking to unseat the 4 year standing president. The ‘R-Word’ will no doubt be at the front of President Rousseff’s mind and it will not come as a surprise to see her opposition use it to convince voters that a change in president and economic policies are better for the future of Brazil. With just over 4 weeks to go, only time will tell if Rousseff will still be president at the 2016 Rio Olympics.

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