The recent global recession has had a profound negative impact on the Brazilian economy. This resulted in reducing gross domestic product growth, reducing employment, rising inflation, and reducing consumer confidence. The effects of the recession can be seen almost anywhere, from the agriculture sector to the service sectors. Inflation is high, while productivity and demand are low. Meanwhile, inflation has driven up commodity prices, making commodity imported from other countries very expensive. To make matters worse, the central banks have implemented stringent measures to contain or reverse these inflationary pressures, leading to widespread currency depreciation, less investment in industrial and manufacturing, less exports, and slower rate of recovery of the economy from recession.
A recent study shows that the Brazilian economy contracted at an annual rate of 4.3 percent in Q3 2021, compared to the gross domestic product growth of 6.5 percent. The contraction was mainly caused by lower consumption spending, higher fixed income costs, and higher mortgage payments. The result is higher current account deficit, greater current account trade balance (exchange deficit), and depreciation of assets. The study further points out that the recession is the most serious since the Great Depression, and it is the biggest crisis since the Great Depression. It is the second worst experience for Brazilian economy since the end of the Second World War.
The study points out that there are two main factors contributing to the current economic crisis. One is the global credit crisis, which affected the fiscal strength of economies around the world, causing them to become weak in terms of output and employment, even if they have high debt levels. The other factor is the weakening in fiscal policies of many countries, especially developed countries, which pushed the country into a spiral of increasing imbalances, higher inflation, and decreasing employment.
A recent study shows that the current recession is likely to continue, as many countries are still experiencing significant economic imbalances, even after the recent financial turmoil. Most economies around the world are facing significant balance problems. The United States is the only advanced economy that seems to have escaped major balance problems. Many countries, including those in the emerging world, are struggling to maintain current financial policies.
According to the study, the current economic crisis has led to significant deterioration in the public finances of most countries around the world, leading to the rise of the term “fiscal imbalance.” In layman’s terms, the term means that the government is spending more money than it is making. In many cases, the only way out of this situation is through prompt and radical change in current circumstances, including structural changes in fiscal policy, and reforms designed to stimulate economic recovery.
The current economic and financial problems are being felt on a macro scale as well. Financial problems tend to spread and affect the entire economy, distorting domestic financial markets, and pushing up cost levels across all sectors of the economy. The study authors identify four key areas that have been affected by the current economic contraction. These are: total employment, capital flows, output gap, and the evolution of the pricing model.
In addition to the above-mentioned areas, the other main areas of concern include deflation (inflation), the decline in productivity, rising inventory, rising unemployment, increasing bank rates, and the downward spiral of debt. On a macro level, deflation basically means that economic activity is declining, and the price level is falling. On a micro level, lower prices imply reduced production, and a lower gross domestic product. When the process continues at this rate, it will lead to serious challenges for the economy as a whole, and will consequently, have a negative impact on inflation. When the process is reversed, the result is deflation, and it is commonly referred to as an economy with excessive inefficiency.