Brazil Economy Shrinks For The Fifth Consecutive Quarter, But Off Beats Analysts’ Forecasts

Brazil’e economy has continued to shrink for the fifth straight quarter and after end of the first quarter in 2016, the figure stands at 0.3%. The contracting rate seems to be lower than the analysts’ prediction for 0.8%. Brazil has been witnessing the worst level of economic recession within a decade coupled with political crisis emerged from impeachment of President Dillma Rouseff.

Meanwhile, Brazil’s GDP has fall by 5.4% on year over year basis, reveals the Instituto Brasileiro de Geografia e Estatistica (IBGE). Though a negative growth has been recorded, but the figure is somehow better than Itau Unibanco’s forecast for 6.1%.

In the first quarter of 2016, Brazil’s exports have been increased by 6.5% while a 0.1% increase has been recoded during the previous quarter. However, investment has been decreased by 2.7% during the same quarter representing the ^th consecutive contraction. Furthermore, private domestic demand has been worse compared to the previous quarter, according to Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc.
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Earlier, Organisation for Economic Cooperation and Development (OECD) has slashed economic growth forecast for Brazil on the grounds of corruption and ongoing political turmoil. But the recent statistics have compelled OECD to go through further revision with updated forecast for 4.3% during this year, reports BBC.

A note from Neil Shearing, chief emerging markets economist at Capital Economics Ltd. considers the government spending as the key for smaller first-quarter contraction. He also acknowledges last ditch effort of Dilma administration in tackling the recession for the better than expected first quarter report. However, the prop to the economy will sustain due to adoption of tighter fiscal policy.  

Brazil has surpassed the worst level of economic recession during the second half of last year and this year’s recession will be more contained, forecasts Bruno Rovai, Brazil analyst at Barclays Plc in New York. Confidence indices have been improved during April and May following change in power. He also predicts for sustaining the development in the business side, according to a report published in Bloomberg.

Michel Temer, President of the Brazil’s interim government has been struggling to pull Latin America’s biggest economy back on track since his inception during last month. Last week, he has proposed for a constitutional amendment to suspend future public spending while tackling the economic crisis. His proposal has been widely acclaimed and apparently has helped to win back global investors’ confidence, reports Financial Times.

But his government has been battling against threats for destabilization following on going probe on wide-scale corruption over the past 10 days. Following corruption scandal, two of his ministers have already resigned from the cabinet.