MONTEVIDEO, Uruguay — Latin America’s largest economy is officially in recession, according to data released Friday by the Brazilian government.
Far from boosting Brazil’s economic output, the World Cup earlier this year is now being blamed for slowing the country’s economy and helping it slip into negative territory. Too many extra vacation days, slowed production at factories, and cities brought to a standstill by World Cup traffic evidently did more damage to Brazil’s economy than the influx of foreign visitors could repair.
The slump hits at a critical time in the country’s presidential race, which was shaken up earlier this month when the third-place candidate died in a private jet crash.
It’s a complex moment, but let’s keep understanding it simple. Here are four key numbers that explain what’s going on with Brazil’s economy, and what it means for the country’s political future.
According to data from Brazil’s national statistics agency, IGBE, the country’s gross domestic product contracted in the first two quarters of 2014. Two straight quarters of shrinking GDP is technically considered a recession by economists.
In the first three months of this year, Brazil’s GDP shrank 0.2 percent. From April to June, it contracted even more — 0.6 percent, exceeding most Brazilian economists’ expectations, according to Bloomberg.
Paulo Roberto Feldmann, an economics professor at the University of Sao Paulo, said Brazil’s situation is quite unusual, since the recession isn’t being driven by unemployment. Brazil still has a low jobless rate, he said, and consumer confidence and spending remains high.
“Families are still doing well in Brazil,” Feldmann said.
But industries aren’t. Which brings us to…
Along with the slowdown caused by the World Cup, chief among the culprits for the weak GDP figures was a sizeable drop in investment.
Rebeca de la Roque, an official at IGBE, told Brazil’s G1 news that a 5.5 percent fall in investment is the main reason for the slump.
That’s not hugely surprising, given Rousseff’s record of intervention in Brazil’s economy with policies that favor workers over investors.
Manufacturing output also fell 5.5 percent overall, with declines registered in Brazil’s large automotive industry and in furniture and machinery manufacturing.
Construction was also hard hit, tumbling 8.7 percent, according to the stats agency.
It’s been more than five years since Brazil last saw a recession.
Brazil has brought tens of millions of residents out of poverty using a plethora of government programs, most notably the monthly “bolsa familia” (“family allowance”) payments made to the country’s poorest families.
The country also successfully rode a rise in commodities prices, which fueled its economy for about a decade from the early 2000s. But in recent years, its economy has been struggling to find a boost.
In 2013, the Economist declared Brazil’s economy “grounded” — as in, stuck, and not in a good place. A combination of a lack of infrastructure investments, stubborn inflation and inequality continued to drag the Latin American giant down, the magazine said.
Little seems to have changed since then. Friday’s numbers reflect an overall economic decline in Brazil underpinned by a stalling population rate and a reluctance by young people to enter the workforce, said Feldmann, who expects Brazil’s economy to contract by 1 percent overall this year.
“The truth is few people are looking for jobs because they can survive inside their family,” he said. “Especially young people are not looking for jobs.”
Politically, Friday’s dire numbers are bad news for Brazilian President Dilma Rousseff, who was already having a rough month.
Rousseff is fighting for her political survival, which will be decided in national elections in October.
On Aug. 13, Eduardo Campos, who was polling in third place in the presidential race, was killed in a private jet crash in the coastal city of Santos. Campos was replaced by his running mate Marina Silva, a wildly popular environmentalist.
According to recent numbers from Brazilian pollsters Ibope, Silva has surged in the polls and is now a strong challenger to Rousseff.
If the vote continues to a runoff without the third candidate, Aecio Neves, Silva would beat Rousseff, according to the Ibope poll. Forty-five percent of respondents said they would vote for Silva in a runoff, compared to 36 percent who said they would vote for Rousseff.
Since that poll, Silva has performed excellently in a televised debate — while Rousseff will be left to explain Friday’s poor economic numbers.