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Brazilian Economy Shrank by 3.8% in 2015, the Worst Result Since 1990

03/04/2016 - 16h38

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BRUNO VILLAS BÔAS
FROM RIO DE JANEIRO
GUSTAVO PATU
REPORTS EXCLUSIVELY FROMA RIO DE JANEIRO

Bruno Villas Bôas from Rio de Janeiro
Gustavo Patu reports exclusively from Rio de Janeiro

Brazilian GDP fell by 3.8% in 2015 to R$5.904 trillion (US $1.55 trillion), according figures published by the Brazilian Institute of Geography and Statistics (IBGE) on Thursday.

With the fall in GDP last year, the economy returned to 2011 levels. The result is the worst in the latest historical series of the IBGE's National Accounts, which began in 1996.

Marcelo Camargo/ABr
Alimentos e transportes pressionaram inflação em janeiro, diz IBGE
Family consumption, which has driven the Brazilian economy over the last decade, fell by 4% in 2015

2015 was fraught with fiscal and political problems that damaged confidence of both consumers and businesspeople, with unemployment and inflation on the rise. Brazil looks to be heading into one of its longest recessions ever.

The prediction of most economists is that the economy will shrink further this year. The last time the Brazilian economy shrank for two years in a row was in 1930-31, when the global economy was in crisis following the Wall Street Crash of 1929. A period of three years of recession has never occurred.

The recession could have been even more severe, were it not for external demand increasing by 2.7% last year - the first such increase in nine years. This is the result of weaker economic activity and the devaluation of the real.

Family consumption, which has driven the Brazilian economy over the last decade, fell by 4% in 2015. This is the worst performance since 1996, and, according to the old records, since 1991. This is a swift reaction to the deterioration of the labor market and the increase in inflation.

Consumers have been tightening their belts following years of official encouragement. Recent governments in Brazil have offered cheap credit through public banks and reduced taxes on certain sectors. This model has now been revised, having shown clear signs of exhaustion.

However, it was not all bad news. The agricultural sector grew by 1.8% - the only sector to grow amongst those monitored by the IBGE.

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