IN THE past few years Brazil’s economy has disappointed. It grew by 2.2% a year, on average, during President Dilma Rousseff’s first term in office in 2011-14, a slower rate of growth than in most of its neighbours, let alone in places like China or India. Last year GDP barely grew at all. It contracted by 2.6% in the second quarter, compared to the same period last year, and is expected to shrink by 3% in 2015.
Household consumption has registered the first drop, year-on-year, since Ms Rousseff’s left-wing Workers’ Party (PT) came to power in 2003. At the same time, public spending has surged. In 2014, as Ms Rousseff sought re-election, the budget deficit doubled to 6.75% of GDP (the bill has since swelled by another 2.5 percentage points). For the first time since 1997 the government failed to set aside any money to pay back creditors. Its planned primary surplus for this year, which excludes interest owed on debt, of 1.2% of GDP is now expected to turn into a 0.9% deficit.
Brazil’s gross government debt of 66% may look piffling compared to Greece’s 175% or Japan’s 227%. But Brazil’s high interest rates of around 14% make borrowing costlier to service. Debt payments eat up more than 8% of output. To let businesses and consumers borrow at less exorbitant rates, public banks have increasingly filled the gap, offering cheap, subsidised loans. These went from 40% of all lending in 2010 to 55%.