2017 – Brazil’s make or break year?
October 1, 2016, 10:41 am

Inflation, at nearly 9 per cent while interest rates are at 14.25 per cent, has dented hopes for a recovery [Xinhua]

Earlier this week, global ratings firm Moody’s said the Brazilian economy could be turning the corner, especially in the wake of former President Dilma Rousseff’s impeachment.

A senior Moody’s analyst believes that the economy hit rock bottom in the worst recession to hit the country in nearly 90 years, and that the only way is up now.

A return of investor confidence, which current President Michel Temer alluded to during his UN General Assembly speech, will likely be the driving factor in Brazil returning to growth territory in 2017.

The economy looks set to have contracted 3.6 per cent in 2016 but is expected to reach GDP growth of at least 0.5 per cent in 2017.

Meanwhile, Fitch Ratings also sees positive news ahead for the Brazilian economy. It says that recovery will begin in earnest in 2017.

US Treasury Secretary Jack Lew also believes that Brazil will return to growth territory in 2017. He said during an official visit to Brazil on Thursday that Temer’s proposed basked of fiscal reforms would speed up the recovery.

Last week, his government announced a $17-billion austerity package comprised of tax increases and spending cuts.

Austerity measures were unpopular even during President Dilma Roussef’s administration because they greatly affect working class families.

One such measure proposed by the Temer administration is to delay public servants’ salary increases – a bold, if not tough act given Brazil’s very high inflation and unemployment rates.

It will be a hard sell for Temer to push through the Senate his fiscal reforms and austerity packages.

One such bitterly opposed reform is to lower pensions, a measure that is likely to reignite street protests from teachers, police and public staff workers.

Still, Temer may draw some comfort in the fact that the local reais currency has strengthened as the stock market has been among the best performing among emerging economies.

The BRICS Post with inputs from Agencies