CHART OF THE WEEK
The Brazilian economy posted its fourth consecutive quarter of economic contraction, with Q4 GDP falling by 5.7% on an annualised basis. The downturn was essentially due to a fall in domestic demand, whereas the trade surplus was a positive factor because of the drop in imports. Overall, the economy shrank 3.8% in 2015, the sharpest fall since the data series began in 1996.
Our analysis
Brazil is experiencing a confidence crisis stemming from political uncertainty, a situation which comes in addition to pre-existing structural weaknesses and falling commodity prices. The result is a collapse in investment. Household spending is curbed by inflation and an ongoing deterioration in the labour market. A turnaround in confidence levels could spark a recovery but this currently seems unlikely, the PMI composite index having reached a record low of 39.0 in February. In addition, any upturn in commodity prices could be good news for Brazil.
The opinion expressed above is dated as of March 4th, 2016 and is liable to change.
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