The problem with Brazil is that its central bank has done everything the monetary textbook requires of it. Setting aside that Banco itself is a literal mishmash of public and private interests (what central bank isn’t?), the freefall in the Brazilian economy of late is simply puzzling to the mainstream. Unlike the US or Europe, at least the descent is being recognized openly, no weather excuses or residual seasonality here, but even that has been shocking in now both the scale and perhaps more importantly the time.
The latest figures from Brazil paint a Great Recession kind of picture for the country, except that this massive depressiveness has been working up in steadily gaining contraction well over a year now. By orthodox “rulesâ€, that isn’t supposed to happen especially where the central bank follows so closely monetary direction. No matter what Banco has tried, the sinking plane of economic reality remains unrelenting. The proportions now in the latter part of 2015 have become staggering:
The Central Bank of Brazil’s IBC-Br index, a monthly proxy for gross domestic product, showed economic activity fell by a 6.2 per cent in September from the same period a year earlier.
That’s the biggest year-on-year drop on record, according to Capital Economics, and points to a third quarter contraction of nearly 5 per cent.
Economists simply don’t know what to do about it. An economic system is not supposed to undertake a slow motion collapse.
A quarterly contraction would be the third in a row for Brazil. The economy shrank 0.7 per cent in the first quarter and another 1.9 per cent in the second.
With Brazil’s economic and political crisis showing little sign of abating, economists have been busy revising down their already gloomy forecasts for Brazil’s economy in recent weeks.
Recent economic accounts apart from GDP have set those expectations. The data is well beyond grim; industrial production has contracted for 19 consecutive months and 21 out of the past 22. Year-over-year IP fell almost 11% in September which isn’t distinguishable by proportion from the worst of 2009.
