Brazil’s Economy and the Water Crisis

At the close of September this year, the central bank in Brazil lowered its prediction for the annual growth of the country’s economy from 1.6% down to a disappointing 0.7%. Such a low expectation for growth sets Brazil firmly behind many other Latin American countries, except for Venezuela (which is corrupt and socialist) and Argentina. For example, this year:

* Columbia should see growth of 4.7%

* Mexico expects to grow at 2.7%

At the close of September this year, the central bank in Brazil lowered its prediction for the annual growth of the country’s economy from 1.6% down to a disappointing 0.7%. Such a low expectation for growth sets Brazil firmly behind many other Latin American countries, except for Venezuela (which is corrupt and socialist) and Argentina. For example, this year:

* Columbia should see growth of 4.7%

* Mexico expects to grow at 2.7%

However, experts are suggesting that 0.7% growth might actually be a pretty optimistic estimate for Brazil this year. According to a survey conducted on 100 private economists by the central bank of Brazil, the average estimation for growth is only 0.29%.

The Water Crisis

Brazil has recently faced a grueling campaign of elections, in which officials faced a lot of severe criticism when it came to playing down the impact of a yearlong drought in the country. It seems that Brazil is coming to terms with the uncomfortable reality that they are running out of water.

Suffering from the worst drought that Brazil has seen in over eighty years, the two main reservoirs for serving South America’s largest city, Sao Paulo, are estimated to run dry by February if relief doesn’t come soon with the arrival of the rainy season. According to experts, even if the rain levels return to their normal output, which most forecasters do not expect to happen, it could take as much as five years to reach comfortable levels.

Sao Paulo state in Brazil accounts for approximately a third of Brazil’s total economy, as well as 40% of its industrial production. According to the latest statistics, in Sao Paulo, the lack of water is having a severe effect upon farm and factory output, as well as the service sector, leading to a potentially stagnant economy. Nelson Pereira dos Reis, from the stat industry association in Sao Paulo, Fiesp, announced that the water crisis is undoubtedly harming industrial production, and the economic impact is yet to be calculated.

This bad economic news is on top of the 7-1 loss in the World Cup their team experienced in 2014, labeled a national and international disgrace!

A Bleak Outlook

November through January will bring some relief. Forecasters, unfortunately, continue to scale back the estimation for rain in the region, to only 62-65% of the country’s historical average. Forecasts such as these suggest that the problems with water in the country will only resurface in 2015. Well, perhaps they can build desalination plants along the Atlantic coast.

Further Issues in Brazil

Unfortunately, the water crisis is not the only major factor currently affecting Brazil. The deteriorating labor market in the country is also having a negative impact upon the prospect for growth. Unemployment has increased over the last two months, and expectations suggest that it will continue to rise throughout 2015. As a result, experts expect that consumer confidence will lower once again. Higher consumption rates followed a decade long credit-boom that has left the Brazilian middle class in serious debt. Estimates suggest that the segment spends 30% of disposable income on debt service.