MercoPress. South Atlantic News Agency

Brazilian GDP contracted 3.8% in 2015, the worst among major economies

Brazil's economic performance last year vies with that of Russia as the worst in a major economy for 2015.

Brazil's GDP fared worse than almost any other major economy in 2015, contracting by 3.8%, according to the national statistics agency IBGE. Economic growth in the world's seventh-largest economy has fallen sharply in recent months, which was due partly to low commodity prices and sluggish global growth.

 But political paralysis has hampered Brazil's efforts to tackle its economic problems, including a budget deficit that has reached 10.8% of GDP.

President Dilma Rousseff is trying to head off the opposition's efforts to impeach her over alleged accounting irregularities, which means she cannot afford to alienate supporters in her Workers' Party by cutting spending or raising taxes.

Investigations are also continuing into a high-level bribery and corruption scandal involving major construction projects. Ms Rousseff's predecessor as president, fellow Workers' Party politician Lula da Silva, is one of the people under investigation.

Brazil's economic performance last year vies with that of Russia as the worst in a major economy for 2015. Official figures for Russia's GDP last year have not yet been released. For Brazil it was the worst set of figures since 1990.

Analysts say Brazil is now caught in a classic case of stagflation - a combination of high inflation and a recession.

On Wednesday, policymakers at the country's central bank voted to keep the benchmark Selic interest rate at its current level of 14.25%.

High interest rates have traditionally been used in Brazil as a policy tool to keep inflation in check. But inflation has surged in any case, now standing at 11%, while high rates are hurting businesses.

“While we don't think Brazil is on the cusp of a fiscal crisis, the position is fragile,” said emerging markets economist Edward Glossop at Capital Economics.

“If nothing else, it is facing an extended period of budget austerity - and the longer the government fudges or delays the necessary adjustment, the more painful it will be.”

Brazil's government said the poor data had been expected and added that it was focused on boosting the economy this year. “We want 2016 to be a year of recovery for jobs, employment, income, with economic growth,” Labor Minister Miguel Rossetto said.

In a statement, the ministry said the 3.8% contraction of the economy in 2015 reported earlier was due to a drop in global commodity prices, a drought and a necessary adjustment of the economy to try to rebalance public accounts.

However, a private survey on Thursday showed services activity in February fell at the steepest pace on record, suggesting the economy had yet to hit bottom.

“We will probably see a similar contraction this year. There are no growth engines yet. The only one could be exports. But Brazil's economy is relatively closed, so we don't see that taking us out of this hole,” said Joao Pedro Ribeiro, Latin America economist with Nomura Securities.