Why Is Brazil’s Economy In Dire Straits?

‘The Rot at the Heart of the Brazilian Economy… Its struggles with corruption aside, the Brazilian economy also suffers from its disproportionate dependence on one fragile market: its own. Brazil’s massive economy — today the world’s seventh largest – is fueled overwhelmingly by domestic consumption. Consider the numbers: From 2011 to 2015, only 11.5 percent of Brazil’s GDP came from foreign trade — a stark contrast to Mexico, where 32.4 percent of GDP comes from trade beyond its borders’ – Christopher Sabatini, Foreign Policy

Brazil is heading straight into the arms of the International Monetary Fund… Few believe that the ruling Workers Party is either capable or willing to take the drastic austerity measures needed to break out of the policy trap, or that it would suffice at this late stage even if they tried… Brazil’s mistakes are by now well-known. It rode the commodity boom feeding China with iron ore and raw materials, relying on an obsolete growth model that Beijing itself was determined to ditch. It let the currency rise to exorbitant levels that smothered manufacturing in a textbook case of the ‘Dutch Disease’. – Ambrose Evans-Pritchard, The Telegraph

Moody’s downgrades Brazil’s sovereign debt to ‘junk territory’…“The downgrade was driven by the prospect of further deterioration in Brazil’s debt metrics in a low growth environment, with the government’s debt likely to exceed 80% of GDP within three years,” [the investor’s service] said. The ratings action also cited the country’s “challenging political dynamics, which will continue to complicate the authorities’ fiscal consolidation efforts and delay structural reforms.”  MercoPress

‘Brazil’s economic problems are largely the result of its goverment’s populist economic strategy. It is a common electoral ploy for governments to overpromise on spending commitments in the run up to elections in order to obtain office, but this overspending eventually leaves that country’s economy weighed down by debt. Brazil urgently needs a change of government strategy. Ministers need to implement appropriate levels of austerity in the short term and then rebalance Brazil’s huge trade deficit in the long run’ – Crystal News Opinion

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