Brazil's Economic Crisis: 6 Things You Need To Know

Once the world’s fastest growing economies, Brazil saw a dramatic change when it faced the worst recessions in its history in 2014. The problem has become steadily worse as the financial situation continues its downward spiral, worsened by an additional political crisis. Here are six things you need to know about the Brazilian economic crisis.

It Started in 2014

The years between 2003 and 2014 marked a transformational decade in Brazil’s history. This period was Brazil’s economic boom that lifted 29 million people out of poverty and reduced the gap in social inequality. Brazil represented the ‘B’ in the acronym BRICS, that stood for the five countries famed for their accelerated growth rates. However, 2014 saw a turnaround for the worse as the economy started to fall. By 2015, the reduction rate of poverty and inequality had stagnated.

29 million people were lifted out of poverty between 2003 and 2014 in Brazil

The Recession is Coupled With a Political Crisis

The Economy Has Shrunk Dramatically

By the end of 2015, a full year after the recession hit, the economy shrank by 3.8%, reflecting the worst annual performance since 1981. This had repercussions—the unemployment level increased to 9%. The economy in 2016 shrank by a further 3.6% with a rise in unemployment rates to 12%, leaving a total of 12.3 million people out of work. The overall investment in the country fell and the shaky economy undermined consumer confidence.

Corruption Scandals Undermined the Economy

Brazil has faced two large corruption scandals over the last decade that have had a negative impact on the economy. The first one was “Mensalão,” a scheme that saw government officials using public funds to illegally pay members of the Congress to support the government in order to win critical votes in 2005. The trail against these crimes was finally concluded in 2012 and saw key officials imprisoned. The most recent and ongoing case is Lavo Jato (Car Wash scheme), so-named from a car wash in Brasilia that was used to illegally clean and transfer money. Since the scheme came to light in 2014, it’s reported that large construction companies in Brazil overcharged Petrobras—a state-owned oil company—for contracts and the money that was later given to Petrobras executives and politicians. A total of R$30 billion ($8.9 billion USD) was laundered, leaving a devastating effect on the Brazilian economy. The case was put on hold in January this year when the Brazilian Supreme Court Justice, Teori Zavascki, who was handling the trial, was killed in a plane crash off the coast of Rio de Janeiro.

Rio De Janeiro is in a State of Financial Emergency

In 2016, the host city of the Summer Olympics was declared to be in a state of financial emergency. At the end of last year, the Brazilian government froze the Rio de Janeiro state government’s bank accounts until the millions of dollars of debt were paid back to the Union. This meant that all revenues going to the state would immediately go to the Union, with no money going to pay salaries, pensions, or social programs. This had a devastating effect on public services such as hospitals and the police force. An agreement has been made between the Brazilian government and Rio’s state government to help solve the crisis, yet even with these measures in place, experts predict that the state will remain in deficit until at least 2021.

The Future Looks Somewhat Positive

Despite a drop of 0.9% in GPD (gross domestic product) in the last quarter of 2016, experts predict a 1% rise in economic growth rates for 2017. The key drivers behind this growth are exports and private investments. However, cynics believe that the corruption investigations will hold back any potential growth. Temer, the current president, is facing allegations of accepting laundered money for his election campaigns. These accusations continue to shake confidence in consumers and investors, two key factors required for economic growth. For now though, the predictions are looking hopeful and unemployment rates are expected to drop too.

Since you are here, we would like to share our vision for the future of travel - and the direction Culture Trip is moving in.

Culture Trip launched in 2011 with a simple yet passionate mission: to inspire people to go beyond their boundaries and experience what makes a place, its people and its culture special and meaningful — and this is still in our DNA today. We are proud that, for more than a decade, millions like you have trusted our award-winning recommendations by people who deeply understand what makes certain places and communities so special.

Increasingly we believe the world needs more meaningful, real-life connections between curious travellers keen to explore the world in a more responsible way. That is why we have intensively curated a collection of premium small-group trips as an invitation to meet and connect with new, like-minded people for once-in-a-lifetime experiences in three categories: Culture Trips, Rail Trips and Private Trips. Our Trips are suitable for both solo travelers, couples and friends who want to explore the world together.

Culture Trips are deeply immersive 5 to 16 days itineraries, that combine authentic local experiences, exciting activities and 4-5* accommodation to look forward to at the end of each day. Our Rail Trips are our most planet-friendly itineraries that invite you to take the scenic route, relax whilst getting under the skin of a destination. Our Private Trips are fully tailored itineraries, curated by our Travel Experts specifically for you, your friends or your family.

We know that many of you worry about the environmental impact of travel and are looking for ways of expanding horizons in ways that do minimal harm - and may even bring benefits. We are committed to go as far as possible in curating our trips with care for the planet. That is why all of our trips are flightless in destination, fully carbon offset - and we have ambitious plans to be net zero in the very near future.