Brazil: Confiscating Confidence

December 2, 2015

If there is no growth in the fourth quarter of 2015—an optimistic assumption given Brazil's escalating crisis—GDP will fall by 3.5 percent this year. The 2015 recession will thus be the worst slump since 1990, when activity dropped 4.4 percent as a result of the infamous Collor Plan, a desperate and unsuccessful attempt to bring down rampant 4-digit inflation by confiscating people's savings.

Brazil's annual GDP growth: Actual and projected

Source: Instituto Brasileiro de Geografia e Estatistica (IBGE) and IPEADATA.

Brazil's recently released GDP figures reveal the devastating loss in confidence that has plagued the economy in 2015. Third quarter figures (not shown in the above chart) unveiled a much larger than expected drop in activity. GDP fell by 4.5 percent compared with the same period last year, led by plummeting domestic demand: Investment fell 15 percent, while household consumption contracted by 4.5 percent. This was the worst performance in 20 years, a harbinger of what is to come.