OIL PRODUCING ECONOMIES AND THE WIND OF ECONOMIC RECESSION: AS BRAZIL EXPERIENCE ECONOMIC RESSION

OIL PRODUCING ECONOMIES AND THE WIND OF ECONOMIC RECESSION: AS BRAZIL EXPERIENCE ECONOMIC RESSION 

 By: 

Nurudeen Dauda

July27, 2016

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Brazil has a daily Crude oil production of 2.1million barrels per day. More so, Brazil has proven Oil Reserves of 15.12 billion barrel with Natural Gas production of 15.79billion cu m and it has 240 billion cu m proved Gas Reserves. Brazil’s economy is the “biggest economy” in South America and is one of the BRICS countries (Brazil, Russia, India, China and South Africa) whom Martin O’Neil a prominent British economists predicted that, they might be the next emerging world powers by 2050.

The federal government of Brazil delivered yet another blow to the country’s ailing economy by announcing that it now estimates a retraction in the country’s GDP for 2016 of one percent. Earlier on the government had revised its retraction of the GDP. However, Higher than expected, Brazil government sent to the Congress a budget revision which calls for a deficit of R$117.9 billion in government accounts this year. With this latest revision of the deficit the Ministry of Finance already admits that the gross debt for Brazil’s public sector should surpass seventy percent of the GDP in 2016, going to 71.1 percent and registering 72 percent of the GDP in 2017. The gross debt of the public sector is one of the main factors looked at by international risk rating agencies when making their recommendations as to whether or not the country should remain as investment grade.

Brazil's economy shrank 3.8 percent in 2015, marking its worst performance in 25 years; according to the state statistics institute (IBGE)."The rate of -3.8 percent is the lowest ... since 1990," when the economy contracted 4.3 percent, said INGE's Rebeca Palis La Rocque, according to Brazilian news network Globo. Latin America's largest economy saw gross domestic product (GDP) contract by 1.4 percent in the fourth quarter last year, capping nine previous months of negative growth. More so, Brazil’s gross domestic product fell by a record 4.5 per cent year-on-year in the third quarter, confirming fears that Latin America’s largest country is on track for its worst recession since the Great Depression. Lower commodity prices, fiscal contraction and the fading of a consumer credit boom have battered what was once one of the world’s fastest-growing economies.

After hitting 7.6 percent growth in 2010, Brazil's GDP took a nosedive in 2011 (3.9) and has been more or less sliding since -- 1.9 percent in 2012, 3 percent in 2013, and 0.1 percent in 2014. In 2015, the government registered a fiscal deficit of some 111.2 million reais (28.6 million dollars), the highest deficit since 2001. Brazil's economic contraction has been accompanied by a rise in unemployment, inflation and the benchmark interest rate (14.25 percent annually), and tighter credit.

The slowdown is generating a perfect storm of negative economic data. Unemployment rose to 7.9 per cent in September, up from 4.7 per cent in October last year, inflation is running at more than 10 per cent for the first time since 2002 and Brazil’s government budget deficit is now at 9.5 per cent of gross domestic product. The poor GDP figures pile more pressure on Brazil’s government.

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