Recession deepens in Brazil, world's seventh largest economy

Brazil's economy contracted 4.5 percent year-on-year in the third quarter, officials said Tuesday, reflecting a steeper than expected recession in the world's seventh largest economy.

The bad news comes amid a paralyzing political crisis that has delayed action on measures needed to stabilize the economy.

Third quarter GDP shrank 1.7 percent from the previous quarter, well beyond the 1.3 percent expected in an expert survey by business daily Valor.

"Brazil's economy is in intensive care and will remain sick in the upcoming quarters," Andre Perfeito, chief economist of Gradual Investimentos in Sao Paulo, told AFP.

"It has not yet bottomed out, and instead will worsen at least until the middle of next year," he said.

Since entering recession in the second quarter, Latin America's largest economy has gone from bad to worse: in the first nine months of the year, GDP contracted by 3.2 percent compared to the same period last year, the steepest decline in 19 years.

It shrank 0.8 percent in the first quarter, then 2.1 percent in the second, according to revised figures released Tuesday by Brazil's statistics agency.

From July to September, it contracted 4.5 percent as compared to the same quarter a year ago -- the worst quarterly performance since 1996.

The markets are expecting the economy to shrink by 3.19 percent this year, followed by negative 2.04 percent growth in 2016.

If that happens, it would mark the deepest recession in 85 years, going back to the Great Depression years of 1930-31.

"What worries me the most is the drop in investments," said Perfeito.

Confronting Brazil is a significant drop in consumption, rapidly deteriorating public accounts, inflation that is now near 10 percent and rising with the real's depreciation against the dollar, and growing joblessness.

All that is set against the backdrop of a deepening political crisis and plummeting public support for President Dilma Rousseff.

- 'Prolonged agony' -

The economy ministry said the poor showing reflects "uncertainty" that goes "beyond the natural readjustment that the Brazilian economy is going through as a consequence of falling commodity prices and the weakness of global economic activity."

The opposition has called for Rousseff's impeachment and Brazil's Congress has further undermined her by delaying approval of fiscal austerity measures.

Added to that is a sprawling pay-to-play corruption scandal at state oil giant Petrobras that has hit the broader economy with full force since it was uncovered in September 2014.

Heads of the country's largest construction companies, bankers and leaders of the ruling Workers Party, in power for 12 years, have landed in jail because of the scandal.

With Brazil in a mess, Standard and Poor's lowered the country's debt rating to "speculative" in October, while Moody's and Fitch have given the country's sovereign debt their lowest investment grade rating.

As the president of the Chamber of Deputies, Eduardo Cunha, maneuvers against Rousseff, his number one enemy, "the budgetary adjustment is delayed and that creates a prolonged agony," said Perfeito.

The Congress has yet to approve Rousseff's 2015 budget goals, which have been revised downward several times already and now project a deficit.

For 2016, however, her administration is planning on a surplus of 0.7 percent, not counting payments on the debt.

"Having a minimum surplus next year is essential. Otherwise we'll become like Greece, a country with structural problems that saves nothing to pay its debt," Economy Minister Joaquim Levy warned in an interview published Monday in the newspaper O Globo.

"Under those circumstances, no one will invest in the country," he said, adding, however, that Brazil "with its 200 million inhabitants and all its wealth, is not the Greece of these past years."