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Brazil’s Temer faces ‘stubborn’ recession
September 20, 2016, 12:22 am

Temer wants to raise taxes and cut public spending [Xinhua]

Temer wants to raise taxes and cut public spending [Xinhua]

An index which measures economic activity in Brazil’s farming, industry and services sectors has contracted, a new report has shown.

The central bank’s IBC-BR index for July fell 0.09 per cent, defying forecasts that it would rise.

In June, the index strengthened by nearly 0.40 per cent.

While not immediately damaging to Brazilian hopes of a recovery and to President Michel Temer’s vision of a country open for business, the disappointing data points to a stubborn recession that requires more aggressive fiscal reforms.

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.

Some economists believe that the country will start to turn the corner in 2017.

Now, the IMF says that confidence in the Brazilian economy is slowly reawakening. It said that Brazil’s contraction (3.8 per cent) in 2015 would moderately subside to (3.3 per cent) in 2016. It forecast positive growth for Brazil in 2017 but voiced concern over ongoing corruption and political scandals which have rocked Brazil.

The question right now is whether the political environment will stabilize following the impeachment of Dilma Rousseff.

The BRICS Post with inputs from Agencies

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