Brazil - The Broken Bric

China sneezed, Brazil is ill and wilting badly. The Brazilian Premier Dilma Rousseff is the most unpopular president in Brazilian history and the economic picture is bleaker than ever. The Brazilian spirit took a hit as government corruption was unveiled in the multi billion dollar Petrobras scandal.

Causes

Brazil`s economy has been under siege, facing a barrage of interlinking problems which show no sign of letting up. The slowing of Chinese economic growth has battered the commodities that Brazil exports, the political establishment is fracturing and recent corruption scandals are threatening to rock the nations political foundations. However, it would be crass to call Brazil a victim of circumstance, its pacific neighbours, Colombia and Chile (also huge commodity exporters) have not been affected nearly as badly as Brazil who due to poor governance have essentially become architects of their own demise. Brazil is a resource rich nation exporting commodities en masse ranging from oil and iron to soybeans and beef, in doing so she was profitably positioned as a supplier of the goods China craved. It is this position however that has left it so vulnerable to the recent instability, as illustrated by the plummeting iron price.   The Scale

Rousseff may have had good intentions when starting out announcing that "[her] mission is to eradicate poverty" but Brazil are in now in the deepest recession since the greatest depression, the currency (the Real) has fallen to a near 13year low against the dollar.Rousseff`s plummeting approval is not unjust, the kickback for contract scandal that has engulfed the senior political class as well as the oil and gas giant Petrobas frankly stinks and has caused the public to lose faith in an evermore unstable and mismanaged coalition government. The country's GDP has fallen 1.9% on the last quarter and growth predictions for the year are a dismal -2.26% and if that wasn't bad enough interest rates are at 14% to ward off inflation, understandably confidence is at an all time low. Pessimism it seems, like the football in Brazil, is free flowing. 

The Outlook

The world of finance has rarely aligned itself with the traditional underdog story but in this instance it may just buck the trend. The Brazil that was once touted as the next of an upcoming band of nations in the BRIC seems a distant memory, however amidst the mire there is a silver lining of sorts. On the political side, the efficacy of its institutions has been somewhat reaffirmed, the success of the corruption probe in unmasking the crooked officials and illegitimate payments made to them is a definite positive and all senior members of politics recognise the need for fiscal restraint going forward. As such should the nation reform its fractured political system, unite the micro-parties that plague its government and begin the purge of corruption within its institutions the outlook may be brighter than once thought. The economy could yet bounce back too, with the devaluation of the currency, exports are beginning to recover and with stable government investment will return. Brazil's priorities going forward are therefore quite self evident, swift and meaningful political reform coupled with fiscal discipline ware necessary. Whether Rousseff will be present or not to deliver these changes is another case altogether.