Brazil's Economy Is On The Verge Of Total Collapse

Tyler Durden's picture

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 Brazil.

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 weaker BRL.
  • The new economic team faces, among other things, the very significant challenge of repairing the severely deteriorated fiscal picture.
  • 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 weak growth.

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.

In charts:

And the key numbers:

  1. 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 R$2.3bn deficit.
  2. 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.
  3. 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.
  4. 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.

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ZomBiEHiGH's picture


DetectiveStern's picture

Collapse and replace for the BRICs


They've created their own fund, agreed trade in local currencies, created SWIFT replacement, bought a honk load of gold and oil in the last year. They'll default on their Western debt and move over to a new currency (Real 2.0) backed by the new Eastern money system.


Greece looks like it could join them which would be interesting.


Helps put the situations in Syria and Ukraine, both Russian backed countries, into context. This is big shit.

PartysOver's picture

Maybe they need to impose a Haircut.  But already being Brazilians ...............

(Gonna catch hell for that one)

Oh regional Indian's picture

Host a global sporting event (World Cup/Olympics) and watch your economy go to the shitter within 2 years. Old pattern.

Yet, countries go gaga when they "win" the right to do so.

What was a marginal country like Brazil doing spending billions upon billions on mostly sporting infrastructure?

Bread and circuses.


Herd Redirection Committee's picture

ORI, I don't know about Brazil, but I know they promised the PEOPLE of South Africa there would be SCHOOLS, HOSPITALS, new wells, and roads built, in addition to the stadiums.

What was built... were stadiums and roads to the stadiums!

BuddyEffed's picture

The stadium business model is no longer valid.

The debt business model is no longer valid.

Brazil needs a new business model.

Tao 4 the Show's picture

Gives a whole new meaning to "Brics and Mortar" economy, as long as you get the right definition of mortar.

Syrin's picture

Sao Paolo has less than a month's supply of water.   I doubbt they're too worried about the economy there.

weburke's picture

The weather gods are only following instructions. 

PTR's picture

Now you know why I'm glad Chicago didn't get the 2016 games.


Also, fuck Rahm.

strannick's picture

This author could produce even more horrifying bullet points for the collapse of the US economy, but then of course he couldn't rely on Goldman for source material

Bangin7GramRocks's picture

Best asses in the world! I don't give 2 Taco Bell shits about anything else.

Antifaschistische's picture

Yes, the BRICs have their own FIAT fund to help support their FIAT problems...then, they can follow our lead and create a FIAT QE to support their fund to further support their problems.    It's like a Perpetual Fiat Motion Economic Stimulus Non-Optical Illusion Wealth Generator. 

Nomatrix's picture

Well, it seems that no one wants to understand between a monetary system based on debt and another one based on debt, the differences are nonexistent.

One may ask, what the hell they "discuss" between them when both sit at the table of the BIS?
talk about sovereign money debt free? Certainly not

PTR's picture

backed by the new Eastern money system.


...which according to the plans is the step before the global unified system.

TheReplacement's picture

The problem is that they have command economies and we all know what happens with those, over and over and over.  Perhaps the BRICs can break the dollar but it will not last.

angel_of_joy's picture

Stop paying your debt. Ask for restructuring or else... Problem solved !

noben's picture

"How's that BRICS thing working out for you? Who's your daddy?" -TPTB

Divide & Conquer working pretty good for TPTB.

Now if only the Chinese had real balls, and would let the BRICS decouple from the USD "Now!". But, no, their tong pricks (have been persuaded by TPTB) to "keep making money", and the tong oligarchs run China. Likewise, the nouveau Boyars got suckered into the same con, driven by their lust for money.

They think they're so fucking clever, but they're not. They're being played like a Stratavarius by a culture even older and more devious than theirs. Between the Sayanim, the Tongs and Boyars, all acting (in effect) as the Fifth Column, the Neocon agenda marches on.

What's that about Pride and Fall and all that? And today's Special: "Chicken balls a la Kung Pao"

Lea's picture


"They're being played like a Stratavarius by a culture even older and more devious than theirs."

Ahem... that would be Stradivarius.

Who's the "even older culture"? To beat the Chinese, whose culture began in the 21st century BC, you're going to have to go back at least to the Sumerians. Or maybe Mohenjo-daro.

So, all in all, please don't try to look smart.

Benjamin123's picture

Countries are not real. Your culture started the day you were born.

madcows's picture

huh, all those plastic horse sized ass injections aren't propping up the economy?

Calmyourself's picture

I may have mentioned this before.. Collapse, collapse, collapse is not a reduction in standard of living, not being able to party at carnival or no icee's on the beach..  It is feral human beings in the streets killing, robbing, looting to simply find calories once started it does not stop as JIT breaks down.

I do not think that word means what you think it means...  Of course most of these articles are written by traders who have at least been to the Hamptons and having no butler to wipe your ass is a collapse...

Oldrepublic's picture

Calm is right, I was in Buenos Aires  for several  months in 2002 just after the big collapse of the peso and the economy in Argentina,did not see any feral humans on the street rioting, killing etc.

Benjamin123's picture

I was there too. There were lots of prostitutes, beggars, sadness in the air and individual stories of losing everything.

Calmyourself's picture

That is sad and a breakdown in civility as the least among us are reduced to grinding poverty.  I just want to retain the integrity of these words, it will become important.

eclectic syncretist's picture

The real panic will start when/if plastic surgeons leave Brazil.  In the meantime,...

Spitzer's picture

In other words, the US's creditors are going broke. This will not bode well for the debt of the US. By the time its over, the Fed will own double the treasurys  of what the rest of the world owns.

JailBank's picture

Ahh. One bank to rule them all. The FED can just print that up and buy them. Creditors? We don't need no stinkin creditors.

disabledvet's picture

Using a fiat money standard yes this is true.

LawsofPhysics's picture

On paper perhaps.  In reality, Brazil has a fair amount of resources and real wealth still in their possession.

Seem to me that this is simple more an issue of "prices" and "valuations".


Push reset already.

Kaiser Sousa's picture

rate cuts...who give a fuck...

"The Central Bank of Russia bought a record amount of gold in the first 11 months of 2014 spending an estimated $6.1 billion. Increasing gold reserves attempts to reduce dependence on the dollar amid geopolitical tension, Mark O’Byrne of GoldCore, told RT.

Russia’s gold purchases accounted for a third of the world’s total of 461 tons, according to research by Thomson Reuters GFMS (Gold Fields Mineral Services). The amount of gold bought went up 123 percent from the previous year to 152 tons, worth $6.1 billion at current prices. It’s the most Russia has spent since the collapse of the Soviet Union.

Given the tension between the US and Russia, it’s more likely Russia will sell dollar assets and buy gold, said O’Byrne.

“That will be done both to protect the ruble and potentially to position the ruble as a reserve currency in the long-term, but also as a signal to Washington,” he said, adding that it’s almost like a geopolitical move showing that Russia has a monetary and financial alternative and it can retaliate if economic sanctions were to deepen.

On Thursday EU foreign ministers decided to prolong sanctions against Russian officials and the militias in eastern Ukraine until September 2015, but decided against broadening the list of economic restrictions. A final decision is expected in February."

Harbanger's picture

Why are countries with the most natural resources also the poorest?

JailBank's picture

They don't have the printing presses that "advanced" economies have.

Harbanger's picture

Zimbabwe had a printing press, so it can't be that.

LawsofPhysics's picture

Please, they were not printing petrodollars.

big differnce.

Oldrepublic's picture

actually I understand that both Iran and North Korea had a  first class printing press that was making millions of so called super dollars

flysofree's picture

Exactly, there is a difference in making your county 'investable' for the banks and 1% and what is the real economy.

Captain Willard's picture


Minimum wage in Rio is $325 (USD)/ month. My friend there tells me bus fare is $2 and she has to stand on the bus. I just don't see how that can add up to happiness for the average Jose'.

Perhaps it's just that simple.

Oldrepublic's picture

cost of living in Brazil figures from a very good website with statistics from various countries around the world

Sao Paulo

average income $884/month

Dr. Engali's picture

What, not Brazilian babes? WTF Tyler? Throw us a bone here.

NoDebt's picture

Only reason I came in this thread.  Total rip-off.

Dr. Engali's picture

That should have read ' no hot Brazilian babes'. Stoopid stoopid Obamaphone.

Tao 4 the Show's picture

Those "hot Brazilian babes" are just carnival cruise ships for pathogens. Note that you can hardly find AIDS statistics for Brazil (not to mention all the other goodies).

highly debtful's picture

You guys disgust me. The brain is important, not the body. But perhaps that's why my wife often reminds me of Peggy Wanker when she talks to me. Married with children, one of your better export products. I loved that show. I know, I know, not really high brow, but it's my kind of sitcom.

NoDebt's picture

You viewed that as a Sitcom?  Dude, that's what it's really like here.

highly debtful's picture

Please don't tell me you're a shoe salesman.

ZomBiEHiGH's picture

If I had a gold brick for every time an article mentions "implode, plunge, collapse"... i'd still have MOAR than the Feds. WHEN IS THIS BITCH GONNA COME DOWN I CAN'T GO ANOTHER YEAR WITH THIS BULLSHIT.