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Brazil: boom to bust story continues as GDP shrinks again

economy

Brazil: boom to bust story continues as GDP shrinks again

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Brazil’s economic boom to bust story continues.

Gross domestic product shrank again between January and March. It was the fifth straight quarter of decline and production was lower in agriculture, industry and services, the three main economic sectors.

The fall of 0.3 percent from the previous quarter was smaller than expected but analysts pointed out that was only due to heavier government spending in the period.

Brazil’s GDP fell 5.4 percent from a year earlier, according to the statistics agency IBGE.

Business investment and household demand slid as companies shed more than 100,000 jobs per month.

Exports were a rare bright spot, with an increase of 6.5 percent from the fourth quarter after a sharp depreciation of Brazil’s currency, which made its products more affordable overseas.

The latest business surveys also showed the downturn in Brazil’s manufacturing sector intensified in May, leading to a new record in job cuts as production fell for a 16th straight month.

“Record contraction in payroll numbers is likely to further aggravate domestic demand as we move into the second half of the year,” said economist Pollyana de Lima with Markit, the organisation that carried out the surveys.

The state of Latin America’s largest economy is at the centre of a political crisis which saw President Dilma Rousseff suspended last month to face charges of breaking budget rules.

The Finance Ministry said Brazil’s economy is going through its worst recession ever but will probably start to recover in coming quarters thanks to measures announced by interim President Michel Temer, who was Rousseff’s deputy.

Sacrifices needed

As the latest GDP numbers were released Temer vowed not to cut spending on health and education, reversing previous statements from government ministers.

But he warned that sacrifices are needed to balance Brazil’s public accounts and restore economic growth.

“There is no longer any room in Brazil for a bloated and inefficient state,” he said at a ceremony where the new heads of state banks and state-run oil company Petrobras took office.

Temer criticised the state of the country he inherited from Rousseff, with 11 million unemployed, stubbornly high inflation and a massive budget deficit.

Rousseff has accused him and others of mounting “a coup” saying the impeachment proceedings against her were designed to stop corruption investigations into Petrobras.

Two members of Temer’s cabinet have already had to resign after they were allegedly discovered trying to derail the inquiries. Many other leading politicians face allegations.

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