Lower Inflation Rates Signal Promising Turnaround for Brazil
Anyone paying attention to economic news knows that Brazil has been battling its worst recession in decades. President Michel Temer’s platform focuses on economic recovery, likely because of his predecessor having been impeached for mismanaging state funds. Many fault the two former presidents – Lula and Rousseff – for the country’s economic state. Others place the blame with the country’s richest and most powerful businessmen and politicians.
Many doubted that recovery would even be possible. Inflation soared and Temer came under investigation for the same type of corruption that got Rousseff removed from power. But several measures have led to a hike in consumer spending. The Central Bank lowered interest rates, inflation levels stabilized, and the government allowed workers to make early withdrawals from severance funds. While they are modest changes, they have undoubtedly helped a country that a year ago was taking a sharp nosedive.
The Central Bank’s quarterly inflation report puts economic growth in Brazil at 0.7 percent. This is an improvement from previous estimates of 0.5 percent. For 2017, the government estimates inflation at 3.2 percent, while 2018 estimates are at 4.3 percent. September saw price increases at 2.46 percent, the lowest in 18 months and less than the targeted 4.5 percent. Finally, increased consumer spending caused GDP to improve by 0.2 percent.
Last year, Brazil’s Central Bank began slashing interest rates to boost consumer spending. And these efforts have yielded results. Interest rates have come down from 14.25 percent to 8.25 percent. While interest rates are still high, the Central Bank is not finished. With more trimming to come and a currency that is more stable, a slow recovery seems to be in the cards.
One of Temer’s long-term plans to fix the economy is to attract foreign investment by helping foreigners open businesses. He hopes to do this by slashing some of Brazil’s famous red tape. An unpopular plan, but one that is still on the table, is reforming Brazil’s bloated retirement system. The current system drains billions from government coffers and allows state employees to collect pensions without a cap.
Although the turnaround has been modest, the economic measures taken by the current administration seem to be leading toward growth. It is a promising sign for Brazil’s economy.