According to data published on Tuesday, the economy shrank 1.7% in the third quarter in relation to the second, amounting to a total reduction of 4.5% in a year. Her administration says an overhaul of public finances is a key condition to restore growth amid the worst recession in 25 years.
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Brazil’s political establishment is already close to paralysis due to an investigation into a massive graft scandal at state-run oil company Petrobras that has heightened political tensions and created gridlock in Brasilia.
The country’s unpopular President, Dilma Rousseff, has been trying to cut spending and raise taxes and this new fall in economic activity will make the latter harder.
“There is still no light at the end of the tunnel”, said Luciano Rostagno, chief strategist at Banco Mizuho in São Paulo. “There is a reasonable case to be made that Brazil is now enduring its worst recession since 1930-32”.
The prospects are not encouraging.
In research carried out by the Central Bank, the expectations of investors and analysts for the annual reduction were around 4.1% last week, up from just 1.5% at the beginning of the previous quarter. Investment and exports also fell.
That could be a wild card for her as she fights for her political life. That brought Congress to a halt.
Swap rates on the contract maturing in January 2017, a gauge of expectations for interest-rate moves, dropped 0.07 percentage point to 15.67 percent.
The cloud of political uncertainty in Brazil has sapped business and consumer confidence, which remain stuck near record lows.
The economy has shed more than 1.4 million formal jobs in the past year, causing the most unemployment since the 2009 global financial crisis.
-Permanent removal would require the support of two-thirds of senators. The law obliges the government to cut spending to meet the fiscal savings goal.
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But in October Brazil’s federal audit court ruled that Rousseff broke the nation’s fiscal responsibility law in 2014, opening the door for impeachment proceedings.
