It’s easy to see why the estimates are so pessimistic; the country’s economic activity index – seen as an indicator of growth – declined by 0.13 percent in the second quarter, and the economy contracted by 0.2 percent in the first. Another consecutive quarter of contraction would put the country in a technical recession.
Either way, the Brazilian economy is clearly struggling, and the government appears to be preparing for the worst, introducing stimulus measures to try to boost growth.
Slow and Painful
Brazil’s modest recovery from its two-year recession has been slow and painful. Since 2017, the government has adhered to budget spending caps and has slashed spending on social programs. Unemployment reached 12.7 percent in the first quarter of this year, and though it has since fallen to 12 percent, it remains well above pre-recession levels, and an additional 28.5 million Brazilians (25 percent of the working-age population) are considered underemployed.
Productivity has dropped as more people settle for informal work or leave the workforce altogether. Research from the Brazilian Institute of Economics found that labor productivity fell 1.1 percent in the first quarter of this year, led by declines in the manufacturing and services sectors.
The deceleration is even more stark when compared to the 2.8 percent increase in productivity in the last quarter of 2018. Real income has also declined throughout the year. In May, the average household monthly real income was 2,280 reals ($560), down 1.5 percent from the previous quarter.
To address these issues, the government of President Jair Bolsonaro has made structural reforms a top priority. The cornerstone of the reforms has been changes to the pension system – including an increase in the retirement age – through which the government hopes to save $800 billion to $900 billion over the next 10 years.
According to the Bolsonaro administration, spending on social security and other social assistance programs in Brazil ranks among the highest in the world, and it’s becoming a bigger burden as the Brazilian population ages and its growth rate declines.
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