Analysts Warn of Sluggish Recovery Progress for Brazilian Economy

July 27, 2015Brazilby EW News Desk Team

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According to experts, Brazil may take years to make a substantial economic recovery. Brazil's currency fell to its lowest level in 12 years when compared to the dollar.

An economist from Futura believes growth will not return to Brazil until 2018, while another predicts that the economy will decline in 2016. The government has diminished expectations as well, forecasting a 1.49-percent contraction for 2015, but market analysts expect a steeper fall. Unemployment expects to grow in the next few months, including rising discontentment among a populace that is weary of little progress. Short-term contraction is a certainty among analysts, but Brazil may face up to seven years of little to no economic growth.

Brazil suffers from lethal combinations of low commodity prices, a stagnant world economy and massive corruption. Brazil possessed a thriving economy that benefitted from the commodity boom, but with lower prices and waning demand in overseas markets, Brazil struggles to maintain economic momentum. To make matters worse for President Dilma Rousseff's administration, prosecutors announced that Marcelo Odebrecht, chairman of Brazil's largest construction firm, faces charges pertaining to the Petrobras scandal, which is dragging down the nation's economy. Petrobras is the center of economic and political life in Brazil.

Petrobras activities became known when federal police and prosecutors unveiled a system of price-fixing and kickbacks within the organization and these ventures are being tied to black market activity. Further, authorities accuse the firm of inflating contracts and placing additional funds into personal and party bank accounts, including the accounts of the Workers' Party, which is Rousseff's party. Rousseff helmed Petrobras for seven years before her tenure as president, but she has not been directly implicated in the scandal.

The national corruption issue is among many factors that has left Rousseff with a dismal 7.7 percent approval rating. Corruption is also one of the numerous issues that have been brought to the forefront by protest movements that have swept across the nation in recent years, and the government seems unwilling or unable to make the necessary reforms.

The problem is that Rousseff has little political clout to make important changes, such as reforming public spending, because of roaring opposition in Congress. Rousseff also lost an important ally of the Workers' Party, Eduardo Cunha, who has joined the opposition against her. The government recently announced additional cuts of $2.66 billion, amounting to $24 billion of austerity measures this year. However, given the contentious political climate, analysts are not hopeful that Brazil will make more meaningful cuts and reforms going forward.

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