Government Spending Drags Brazil’s Economy Out of a Recession

Not a Sound Long Term Plan

With increased, focused government spending and tight fiscal discipline measures in place, the Brazilian economy is finally out of its recession. However, with the gross domestic product (GDP) expanding a meager 0.1% in the third quarter, economic growth is just a financial figure rather than a clear indication of GDP growth.

Not a Sound Long Term Plan

With increased, focused government spending and tight fiscal discipline measures in place, the Brazilian economy is finally out of its recession. However, with the gross domestic product (GDP) expanding a meager 0.1% in the third quarter, economic growth is just a financial figure rather than a clear indication of GDP growth.

Nonetheless, the figures published by the Brazilian Institute of Geography and Statistics (IBGE) mean that Brazil has technically come out the recession that had been casting shadows of concern over the country’s economic future since the first quarter of their financial year. GDP growth fell short of the median estimate of 0.25%, as estimated by The Wall Street Journal, in a survey of twelve economists.

Brazil Still not Impressive

In addition, in comparison with the GDP figures from the third quarter of 2013, GDP fell by 0.2%. Considering that the de facto definition of ‘recession’ is the continued shrinking of a country’s GDP over two successive quarters, the Brazilian economy has a lot to be relieved about with the recent results.

Mixed Economic Sentiment Following Brazil’s Technical Recession Rescue

Declining consumer spending had been a serious concern, especially when it dipped by 0.3% in the third quarter in what was the worst drop since 2008 when the global financial recession was wreaking havoc on Brazil. However, economists share common opinions on the assertion that the underlying causes of the plummeting consumer spending has more to do with homegrown issues rather than global economic rub-off.

People who rode on the recent consumption boom and financed heavy purchases are now finding it hard to repay the debt, and the same is evident in the noteworthy decrease in consumer spending in the country. In addition, interest rates in Brazil are among the highest in the world. Worsened by a sticky inflation rate, the combined factors result is a pressure on consumers to control their spending. Whereas economists feel that the tight financial discipline imposed by the Finance Ministry, backed with government spending have dragged Brazil out of recession, the Ministry itself is ready to drive the positive results for the near future.

However, how much of other peoples’ money can the government spend?  This does not seem to be a winning long run strategy to any business owner.

Ministry of Finance Hopeful of Driving Growth for the Current Quarter

Whereas economists are more inclined to wait and see if ‘growth’ continues and gains pace in the coming months, the Finance Ministry has expressed glee at the turn of events. Statements issued by the Finance Ministry indicate that the economic growth impetus will continue in the period between November and December, despite acknowledgement of the fact that the rate of growth is modest.

This is just another example of mismanaged government. Brazil does not have to import any oil since all their cars run on sugar ethanol. They produce oil and are able to sell this to other countries. They also have expensive socialized health care. Brazil’s mismanagement defeats both of these major economic positives.

As per figures published by IBGE, the slight expansion of the economy is welcomed news when compared against the contractions of 0.2% and 0.6% recorded in the first and second quarters of their financial year, respectively. Industrial output growth and production investment are the major contributors towards positive results recorded by the Brazilian economy. If the resumption in investment continues and gathers some momentum, the paltry economic growth of 0.1% could result in better numbers in 2015.