Brazil's economic recession not going anywhere

The recession is expected to intensify and last longer next year, with activity not starting to recover until late 2016. Persistent political uncertainty with little sign of improvement indicates no trigger for a rebound in confidence, continuing to affect private consumption and investment. A 3.5% yoy GDP contraction is expected in 2016, following a -3.3% yoy forecast for 2015. 

Investment levels will decline as companies cut investments amid an uncertain scenario. Private consumption should deteriorate further next year due to a squeeze in disposable income amid high inflation levels, rising unemployment and falling real wages following a weaker labor market, as several unions are accepting wage readjustments equal or even lower than inflation. The growth slowdown in credit markets, expected to continue in 2016, also contributes to lower private consumption. 

However, the deeper and longer economic recession should have a positive impact on the external sector. A more considerable adjustment than the market is expected, with the current account deficit reaching US$29.3bn (vs US$47.5bn previously) from US$62.1bn in 2015. Better trade balance numbers, with declining imports and declining income and services account deficits explain the call. The slow decline in FDI which is expected to move to US$65bn in 2016 (vs US$70bn expected in 2015) also sustains the call for the improvement in the external accounts.