Until January 2011 when Lula left office, Brazil was widely recognized as Latin America’s gold standard for economic growth and social progress. However, after nearly a decade of sustained growth, Brazil’s economy began to decelerate steadily in 2011, with average annual growth being 4.5% between 2006 and 2010 and 2.1% between 2011 and 2014. The economy entered into recession in 2014 and the situation worsened in 2015 when the country’s economy contracted by 1.9% between April and June, compared with the previous three months of the year..

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REASONS FOR ECONOMIC SLUMP

After decades of rapid economic growth and per capita income gains, Brazil found itself mired in recession, political instability, and unsustainable levels of debt. Brazil’s economic slump was the result of a vortex of two separate, but interrelated crises – economic and political – that engulfed the country, making it the worst performer among the BRIC markets. According to the Brazilian Institute of Geography and Statistics (IBGE), the most important reason for the decline in Brazil’s GDP since mid-2014 was the fall in commodity prices and political turmoil .

REPERCUSSIONS OF ECONOMIC CRISIS

In spite of a deep recession, a corruption scandal, and political instability, the 2016 Olympics evoked a feeling of national pride in Brazil as the country took center stage in the global arena. But those feelings were short-lived when the country faced a spate of long-term financial and economic challenges. Though the Rio Olympics created employment opportunities and helped the country to achieve record tourism figures in 2016, it left an overall price tag of more than US$12 billion, of which the cash-strapped Rio state government would be responsible for about one-fourth. The changing economic situation transformed Brazil from a booming economy to a country facing a mix of recession, inflation, and massive debt...

CHALLENGE FOR TEMER

Brazil’s worst-ever recession unexpectedly intensified in the final quarter of 2016, and pressure mounted on Temer to do more to promote growth. Upon his coming to power, Temer took significant steps to deal with the budget deficit. He announced some fiscal adjustment measures and a reform agenda to re-establish confidence in the economy and its competitiveness. With the support of the Brazilian Congress, the Temer administration passed a law to put a 20-year cap on all federal spending, which had ballooned during the two previous presidencies. He enforced an unprecedented fiscal austerity package including reduction of social expenses, increase of taxes, and freezing of public expenditure to reduce the financial burden, while opening the line of credit to large companies and promising institutional measures to prevent corruption. .

EXHIBITS

Exhibit I:Brazil’s Year-over-year Change in GDP
Exhibit II: People’s View of Economy in Brazil
Exhibit III: Brazilian Economy Contraction Due To Fall in Commodity Prices and Political Turmoil
Exhibit IV: Contraction of Brazilian Economy (Q4 2015)
Exhibit V: Rise of Inflation, Interest Payments and the Nominal Deficit in Brazil (2000-2016)
Exhibit VI: Rating of Brazilian Economybr> Exhibit VII: Brazilians’ View of the Nation’s Economic Prospects - 2017