Brazil enters recession in second quarter

Compared with a year earlier, the economy shrank by 2.6%, the government’s statistical agency said.

“Recession is… a period of overall decline in economic activity, and this is something that has been happening in the Brazilian economy since the second quarter of 2014”, IBGE researcher Paulo Picchetti was quoted by the Folha de Sao Paulo newspaper as saying.

She added: “We have conquered many things”.

However, the probe has spread to top political figures such as Eduardo Cunha, the speaker of Brazil’s lower house of Congress. On August 16th, Brazilians staged mass protests, denouncing the government’s economic mismanagement and corruption as well as calling for Ms Rousseff’s impeachment.

Lula’s name has been publicly proposed by several colleagues of his Workers Party, or PT, to be on the ballot in the election that will choose the successor of PT incumbent Dilma Rousseff, whose second term ends in 2018. The austerity programme has torn apart her governing coalition, but failed to lift business and consumer confidence from record lows.

A huge corruption investigation named Operation auto Wash has revealed a bribes and embezzlement scheme revolving around state oil giant Petrobras and involving politicians and senior executives.

Many economists contend that largess came at the expense of investment, in which Brazil badly trails other large developing countries.

Its currency, the real, has lost 25 percent of its value against the dollar so far this year. Inflation is forecast at 9.56 percent this year.

“If that forecast of a fall in GDP for two consecutive years is confirmed then it will be the worst economic performance for Brazil in 85 years”.

Friday’s figures showed the steepest second quarter shrinkage in the industrial sector, which includes the troubled oil industry centered on Petrobras, at 4.3 percent.

Gross fixed capital formation dropped 8.1%, marking its eighth consecutive quarter of decline.

With the contracting economy, which makes Joaquim Levy’s task to turn a primary budget deficit into a 2015 surplus of 0.15 per cent of GDP even more hard, unemployment rose from 6.9 per cent in June to 7.5 per cent last month, the highest level in five years. In this context, S&P revised the country’s rating outlook from “stable” to “negative ” and Moody’s cut Brazil’s rating to Baa3, which means that the country could soon find its investment grade withdrawn.

Andrei Perfeito, at Gradual Investimentos, said there was a positive side to the bad news because it also reflects attempts at painful but needed reforms.

On a more macro-scale, Brazil is now undergoing a deep economic depression amidst a political crisis.