Waiting for the restart of the economy in Brazil

There are already two years that the largest economy in South America is suffering from stagflation. The last world football cup didn’t help so much the economy and also the drop on the price of oil hasn’t been good news for the largest oil exporter of the south’s continent. The Petrobras scandal added a bit of troubles in more. In fact the corruption has been a big problem on transforming the petrodollars into public investments in this country.

The central bank is trying to control inflation increasing the interest rates in sequence in the last two years but it hasn’t succeeded yet. Economists expect inflation to overpass 6% also this year while the inflation target of the central bank is around 4.5%. Interest’s rates have been increased at 12.25%. These levels are too high considering a growth rate of 0.2 % for year 2014.

The currency also had problems with the confidence of the investors. In the last six month it has lost more than 15 % of his value despite the rise of the interest rates. This is a sign that investors have transferred money out of the country lately.

The Petrobras scandal that started in 2014 involves the executives of the national company. They are accused of having inflated the value of contracts for the construction of oil infrastructures. In this scandal are also involved some politicians from the Worker’s Party now in charge. They are accused of being funded from this extra money.

The Central Bank of the country has lately announced that the expectations for the growth of the economy for this year have been reduced again at 0.13% from the previously 0.38%. Meantime the government of Dilma Rousseff seems to be more optimistic and expects a 0.8% growth for this year. The same happens with the inflation, the investors expect a 6.7 % rate and the government aims a 4.5% rate.

The economy of Brazil has been infected negatively also from the slowdown of other major economies in the planet, China first, Europe and Russia then. So this time the recovery has to come from the domestic consumption and the government’s reforms, starting from the transparency of the Petrobras scandal. In a world with a slow growth this country must find its medicine from the inside.

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