As the world starts to focus on the Olympic Games in Rio de Janeiro, economists say they see signs of another mega event approaching: an end to Brazil’s worst downturn since the Great Depression.
Latin America’s largest country remains in a long and damaging recession, but some leading economic indicators have increased slightly in recent weeks, or at least stopped deteriorating, raising prospects for a return to growth.
A range of other challenges looms as Brazil comes under the Olympic spotlight. Suspended President Dilma Rousseff’s impeachment trial is under way in the Senate, and police on Sunday were hunting for a 12th suspect after arresting 11 men last week they say was part of a group for allegedly plotting to conduct terrorist attacks during the Games. The Zika virus is triggering health concerns among some athletes and other visitors. And a continuing corruption probe is implicating a growing circle of business and political leaders.
In that context, the recovery, which could come as soon as the fourth quarter, will likely be slow but Brazil’s gross domestic product is projected to expand by about 1% next year following deep back-to-back contractions of 3.8% in 2015 and an estimated 3.3% this year.
“We’re near a turning point,” said Newton Rosa, chief economist at São Paulo-based asset-management firm Sulamerica Investimentos. “While we are hitting the bottom, it will not be a V-shaped recovery.”
Among the encouraging signs is confidence among consumers and businesses, which has risen since the leftist Ms. Rousseff was suspended in mid-May over allegations, which she denies, of illegally masking a growing government deficit.
Acting President Michel Temer has installed a blue-chip economics team led by Finance Minister Henrique Meirelles, a former central bank president. Businesses have hailed proposals from Mr. Temer’s administration to limit government spending and raise the retirement age to ease pressure on the crumbling pension system.
“We’ve felt a change since President Dilma was suspended,” said Sergio Ribas, an executive of paper company Celulose Irani.
The country’s economic woes began with slowing Chinese demand for iron ore, soy and other commodities, compounded by unsustainable government stimulus efforts that sent inflation, public debt and deficits soaring..
“The market seems to have found its floor,” Anfavea President Antonio Megale said recently. “Normally, after the numbers have stabilised, you start to get growth.”
Financial markets have rallied on hopes of Ms. Rousseff’s ouster and signs of green shoots in the economy. The country’s benchmark stocks index, the Ibovespa, has risen about 31% so far this year, after dropping 13% in 2015, while Brazil’s currency, the real, has strengthened about 22% against the dollar so far this year, a positive for Brazils economy.
Source Market Watch