Report from the embassy in Brasilia on prospects for the economic policy in 2016
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Where is the bottom?
Brazil’s GDP shrank 3.8% in 2015, the worst result since 1990, dragged down by poor performance in industry and services though mildly lifted by gains in agriculture. Inflation reached double digits; unemployment rose sharply, as did the public deficit. Ongoing political crisis means the government has not been able to pass sufficient reforms. Brazil lost its investment grade from all three major rating agencies. 2016 has begun with most of 2015’s problems still unresolved. The question remains: Where is the bottom?
In Focus: What remains solid?
Solid economic variables such as high foreign exchange reserves, low sovereign external debt and no apparent liquidity crunch are still to be found in Brazil despite the grim scenario. They decrease the likelihood of default. Meanwhile, adjustment in trade due to the weaker Real reduces the risk of a balance of payments crisis. A banking crisis in Brazil appears some way off. Nonetheless, further prolonged recession will test the public banks and foreign investors.