Back when the BRICs were the source of marginal global growth, the
punditry couldn't stop praising them. However, in the past year, now
that China's housing bubble has burst and its shadow banking system has
imploded, those who remember what BRIC actually stood for are about as
rare as those who recall what it means for the Fed to hike rates. Which
is precisely why nobody in the mainstream financial media has commented
on the absolutely abysmal economic update reported earlier today out
We are happy to do so because today's data follows up quite well to our article from a month ago "Brazil's Economy Just Imploded" and as the earlier article on the crashing Brazilian Real hinted,
things for the Brazilian economy how gone from imploding to, well,
worse because not only did the twin fiscal and current account deficits
rise even more, hitting a whopping 11% of GDP - the worst since August
1999, but its government debt soared to 63.4% in 2014, up from 56.7% a
year ago, and the highest since at least 2006. In short - the entire economy is now on the verge of total collapse.
This is what happened in a few bullet points:
- The fiscal picture has deteriorated very sharply since 2011
at both the flow (fiscal deficit) and stock (gross public debt) levels. The primary and overall nominal fiscal surpluses at year-end 2014 were at levels last seen in the late 1990s.
- The steady decline of the public sector savings rate is leading to a
wider current account deficit despite weaker growth and low
investment. In fact, the twin fiscal and current account
deficits are now tracking at a combined, very troublesome 10.9% of GDP,
the worst picture in 15 years (since August 1999). Repairing
the severely unbalanced macro picture would require a deep, structural
and permanent fiscal and quasi-fiscal adjustment and a significantly
- The new economic team faces, among other things, the very
significant challenge of repairing the severely deteriorated fiscal
- The steady erosion of the fiscal stance pushed net and gross public
debt up. Furthermore, fiscal and quasi-fiscal activism undermined the
effectiveness of monetary policy, contributed to keep inflation very
high and drove the current account deficit to a very high level despite
More details from Goldman:
The overall public sector fiscal deficit widened to a
very high 6.7% of GDP (from 3.25% of GDP in 2013 and the highest fiscal
deficit since August 1999) given the very high 6.1% of GDP net interest
bill and steady erosion of the primary fiscal surplus. Given the BRL
depreciation during the month, the interest on the stock of Dollar swaps
issued by the central bank reached R$17.0bn (adding to the R$8.7bn
accrued in November).
Gross general government debt rose to 63.4% of GDP in 2014,
up from 56.7% of GDP in 2013 and 53.4% of GDP in 2010 (the highest level
since at least 2006).
The consolidated public sector posted a very large and
worse-than-expected R$12.9bn deficit in December, driven by the
unexpectedly large R$11.3bn deficit recorded by the States and
Municipalities. The state-owned enterprises also posted a large deficit
in December: R$2.3bn surplus.
Overall, the consolidated public sector posted a 0.63% of GDP primary
deficit in 2014, down from surpluses of 1.9% of GDP in 2013, and 2.4%
of GDP in 2012. This is the worst fiscal outturn in 16 years (since
November 1998) and very significantly below the 1.9% of GDP primary
surplus promised by former Finance Minister Mantega. The erosion of the
primary surplus in recent years was driven chiefly by the weak fiscal
numbers of the Central Government, whose primary balance declined from
1.55% of GDP in 2013, to a deficit of 0.40% of GDP in 2014.
However, the primary surplus of subnational government (States and
Municipalities) has also been eroding, a reflection of the
authorizations given by the Treasury since 2011 for increased borrowing
by the States. For instance, the States and Municipalities posted a
0.15% of GDP deficit in 2014, down from 0.80% of GDP surplus in 2011.
And the key numbers:
- The Consolidated Public Sector (CPS) posted a significantly
worse-than-expected R$12.9bn primary deficit in December, driven by
local governments and state-owned enterprises. The Central Government
posted a R$755mn surplus but the States and Municipalities recorded a
very large R$11.3bn deficit and the state-owned companies an also large
- Overall, the primary balance of the CPS worsened to a 0.63% of GDP
deficit in 2014 from a 1.9% of GDP surplus in 2012 and 2.4% of GDP
surplus in 2012.
- The overall fiscal deficit (primary surplus minus interest payments)
deteriorated further: to a very high 6.7% of GDP given the large 6.1%
of GDP net interest bill. This is the largest overall fiscal deficit
since August 1999.
- Net public debt worsened to 36.7% of GDP in 2014, up from 33.6% in
2013. Gross general government debt rose to a high 63.4% of GDP in
December, up from 56.7% of GDP in 2013.
Good luck Brazil.