Did the Olympics Help Brazil’s Economy?
We have now seen the closing ceremony for the summer Olympics 2016 in Brazil, but the national economic outlook is looking gloomy. According to various economists and news articles, Brazil’s economy is in deep turmoil on two fronts: world economy and global politics. Interest rates are as high as 14.25 % and Brazil’s Central Bank (BCB) said they would not lower those rates for the time being. Inflation rates are also worrying economists at the moment as it is as high as 8.84 % and has stayed for the best part of the last 12 months.
In 2015, the inflation rate went as high as 10.67 %, the highest rate registered over the past 13 years.
The target inflation rate set by the BCB is 4.5 % – a lower inflation rate that seems quite unattainable in Brazil’s actual economic state. According to various economists, Brazil might attain its economic objectives in 2018 if the state manages to bring its economy under control. This would likely propel world currencies, and create opportunities for forex traders using the easy market trading platforms. But Brazilian GDP growth has been very slow and even remained in the negative for the past four quarters at the minimum: it stands to fall by 3.8 % for 2016, according to economists, which is quite a fall for the seventh world economy.
Brazil GDP Trends
It is the second year in a row that the GDP has dropped 4 % according to economists. But Brazil is not only in turmoil because of its bad economic decisions, it is also entangled in repetitive corruption scandals touching its political class, which does not help the economic recovery. Brazilian’s confidence in the political class and the economy are very low and the Olympic games may provide a 2 weeks respite but it won’t solve any of the economic problems, as explained by Monica de Bolle from the Peterson Institute for International Economics, in this podcast.
Moreover, de Bolle explains that the massive spending done for the Olympics could make matters worse for Brazil’s economy as they may not give any return on investments. However, with the new government in place, it seems Brazil is trying to redress its economic situation, which will take at least a few years. Brazil’s fiscal states (particularly Rio, which declared an emergency and asked for the Federal government’s help to pay for the Games) are in a dire state.
Across the country, the unemployment rate rose to 11 % and there is a deteriorating debt dynamics which effectively puts Brazil in a depression state. Brazil’s shortfall is quite important with 170 billion of real (real currency) in debt, which corresponds to 2.7 % of the GDP in 2016; in 2017, the debt will be, according to various economists’ forecast, as high as 2.1 % of the GDP.
But Brazil’s government is trying to get back on track with its economic politics and the new Finance Minister, Henrique Meirelles, has given directions to help the economic effort. There are three pillars on which he wants economic policies to hold on: budgetary discipline; inflation control; floating exchange rates. It remains to be seen whether those three pillars will be sufficient to lift Brazil out of its economic depression.