Brazil, better known as the ‘B’ in the BRICS – a group of major emerging market economies that also includes Russia, India, China, and South Africa – has been grabbing a lot of headlines recently. However, the news has hardly been encouraging. Instead of hearing much about the country’s preparations for its first ever summer Olympics in Rio de Janeiro, or about positive projections for Brazil’s economic growth this year, headlines of a much different nature have been emerging from Brazil. Persistent corruption, such as the case of collusion involving the administration of President Dilma Rousseff and the state-owned oil company Petrobras in 2015, and the continuous deceleration of Brazil’s up-until-recently robust economy have negatively impacted the global market and Brazil’s reputation as an up-and-coming emerging power. In March 2015, hundreds of thousands of Brazilians participated in widespread protests, calling for the impeachment of President Rousseff. Although the calls for impeachment came to pass, deep discontent and distrust toward the current government continue to run high among Brazilians. The explosive outbreak of the Zika virus earlier this year threw yet another monkey wrench into Brazil’s already distressing state of affairs. Brazil’s GDP also contracted 3.8 percent in 2015, and is expected to shrink an additional 3.5 percent in 2016.
The aforementioned constitute Brazil’s more significant and urgent challenges. But as a large, developing country, Brazil also faces the traditional challenges of reducing poverty, expanding access to education, managing urbanization, and improving citizen security. Against such a backdrop, the situation in Brazil leaves one to wonder: can Brazil get its act together quickly enough and salvage a quickly disappearing horizon?
President Rousseff, currently serving the second year of her second presidential term, has witnessed a plummet in her approval and credibility levels among Brazilians. This was related, by no accident, to the revelation that high-profile members of her government had been in collusion with Petrobras. In 2015, top Petrobras officials and top political figures were charged, President Rousseff was not, although she was the chairwoman of Petrobras during the time this took place. The fallout from the Petrobras scandal continues to reverberate throughout Brazil. Not only did it sully the Rousseff administration’s reputation and credibility, it also jolted the economy into a deeper recession. The current state of the Brazilian economy is marked by stagnant GDP growth, poor fiscal management, weak industrial productivity and competitiveness, and decreasing confidence among foreign businesses and investors. If these telltale economic indicators continue to worsen this year, Brazil is likely to face its worst economic recession since 1901.
What are the implications of Brazil’s likely-to-be prolonged economic recession on the global market? Significant, to say the least. According to the International Monetary Fund (IMF), Brazil’s recession was a key factor behind the downward revisions to the global economic outlook for 2016 and 2017. While it is true that Brazil’s economic fate rests largely in the hands of the current government, the prospects for an economic recovery – or a marginal one at best – also hinges on whether China, Brazil’s largest trading partner, can back-pedal what has been a slow-down in it’s own economic growth. China’s slowing growth rate means that it will import less commodities and overall goods. The impacts of this on Brazil is all to great because its economy is almost entirely dependent on commodity exports such as soy and meat, which constitute over 40 percent of Chinese imports from Brazil. The Brazil-China relationship has grown exponentially ever since China became Brazil’s largest trading partner in 2009. In May 2015, during a visit by Chinese premier Li Keqiang to Brazil, it was revealed that China planned to invest USD 50 billion in Brazil, mainly in the areas of infrastructure, trade, and investment. The Guardian reports that China also committed to supplying new metro trains and catamarans for the Olympics in Rio de Janeiro.
For the moment if Brazil is able to keep its oil separate from its politics, and as long as the Chinese economy does not backpedal significantly, there may be a fighting chance for Brazil. Or maybe Olympic glory, at least, can shine through in the end.