Brazil’s economy contracted 0.1 percent in this year’s third quarter, following a 0.4-percent contraction in the second, marking a recession.
A recession is defined as two consecutive quarters of economic contraction.
At the same time, Brazil’s inflation rate has passed 11 percent, cutting real wages by 4 percent, government data shows.
As Trends Journal readers know, a shrinking economy combined with rising inflation means Dragflation, a condition worse than recession, since it will hit the consumer with higher costs and less income.
A severe drought slashed agricultural production by 8 percent in the third quarter, exports plunged 9.8 percent, and manufacturing neither grew nor shrank.
The drought has sent the cost of energy skyrocketing; Brazil derives about 65 percent of its electricity from hydropower.
The crisis also has reduced the value of Brazil’s currency, the real, making imports more expensive.
Brazil rebounded quickly from 2020’s economic shutdown, with its economy returning to pre-COVID output in this year’s first quarter, but then lost momentum.
Some economists are predicting Brazil’s economy will also contract in 2022.
However, Brazil will “surprise the world again” and continue its’ “V-shaped recovery,” finance minister Paolo Guedes told the Financial Times.
Guedes had forecast Brazil’s GDP would swell by 5 percent this year and at least 2 percent next year.
Analysts have pegged Brazil’s 2021 growth at about 4.8 percent and predicted either stagnation or only slight growth next year.
In October, the country’s central bank raised a key interest rate to 7.75 percent in an attempt to lasso inflation, which now has surpassed 11 percent, a fivefold increase in the past 12 months.
Economists expect the bank to boost rates to 9.25 percent by year end, the FT reported.
However, raising rates alone will not be enough to manage Brazil’s growing dragflation crisis.
Residents are scavenging firewood to replace unaffordable gas for cooking, which has soared 30 percent in price, Bloomberg reported.
Instead of landing in the trash, fish heads are selling for $1 each to replace beef or chicken in meals, according to Bloomberg, while supermarkets are attaching security tags to steaks to prevent theft.
Eggs cost 28 percent more than a year ago and flour, meat, sugar, and vegetables are all up at least 10 percent.
Brazil’s staple dish of rice and beans has become a costly luxury for many families with modest incomes and the word “hunger” is being spray-painted on buildings in the country’s largest cities.
About 25 percent of children receiving government food allowances eat three meals a day, compared with 62 percent in 2018, according to data from Brazil’s public health department.
The multiple crises bodes poorly for president Jair Bolsonaro, who is up for re-election next October.
To shore up his popularity, he has announced an array of new social assistance measures, including subsidizing the cost of cooking gas and doubling cash payments to poor households.
However, his aides have warned him that the new spending will worsen inflation, Bloomberg said.
In 2020, Bolsonaro’s administration spent lavishly on social supports, slashing the proportion of Brazilians living in poverty from 11 percent to a record-low 4.6 percent, according to the nonprofit Getulio Vargas Foundation.
When the aid fund ran dry, poverty surged again and now stands at 13 percent.
TREND FORECAST: As we have often said, when people lose everything and have nothing left to lose, they lose it.
Brazil will see a rising number of street protests across the country and rising crime.
As next October’s election nears, Brazil will become less stable both economically and politically, with the government, as do most of those in power, taking an even stronger measure to remain in control.