Why Is Brazil Getting Battered?

Type “Brazilian Economy” into any major search engine and you will see nothing but doom and gloom headlines.

The world’s 9th largest economy saw its BOVESPA index drop a staggering 17.75% in 2015 alone, with charts for the first part of 2016 alone looking like a steep hillside (going in the wrong direction). GDP also contracted by an estimated 4.5% for last year. Inflation increased by 10.67%, and unemployment naturally followed, sitting at 7.5% currently.

So just what is going so badly wrong in Brazil?

Firstly, Brazil’s economy is massively exposed to commodities booms and busts. With major industries including steel, textiles, shoes, cement and motor parts, a global economic downturn can rock Brazil to its core, and has done. Crude price collapses have done nothing to help Brazil either, with this commodity alone making up $13.2bn in exports.

Compounding the first problem is a huge corruption scandal which has seen both government officials and some of the top bankers in the country implicated in accusations and even formal charges of graft. This never does investor confidence any favors and is the last thing Brazil needs during tough economic times.

Lastly, Brazil is suffering the fallout from the China slowdown. With China buying a whopping 18% of Brazil’s exports alone, a slowdown in China is bound to have further negative consequences for Brazil.

2015 was a rough year for Brazil, and there’s nothing good on the horizon for Brazil in 2016 either. What do you think? Is Brazil doomed for the foreseeable future, or could things turn around sooner than I think?

The following two tabs change content below.

Daniel Simmons