Brazil Releases Shocking GDP "Obituary": "It's Mutated Into An Outright Depression," Goldman Exclaims

Tyler Durden's picture


To be sure, we haven’t exactly been shy about characterizing Brazil’s economic malaise as more akin to a depression than a recession. Here are a few representative headlines:

The problem, you're reminded, is that Brazil is in the midst of a dramatic economic downturn that's left the country to suffer through the worst inflation-growth outcome (i.e. stagflation) in more than a decade. Unemployment and inflation are soaring (annual headline IPCA inflation at 10.28%, unemployment at 7.9% in August, up from just 4.7% a year earlier) while output is plunging (IBC-Br monthly real GDP indicator down 6.1% Y/Y in September) and the market is losing confidence in the government's ability to end a political stalemate on the way to shoring up the fiscal books and hitting primary surplus targets. Last week's arrest of prominent lawmaker Delcidio Amaral in connection with the ongoing Carwash investigation didn't help.

Thanks to the above mentioned IBC-Br monthly indicator (which showed an economy in "free fall" to quote Barclays) we already knew Q3 was going to be bad on the GDP front. But this is Brazil we're talking about, which means that as bad as consensus is, there's always the distinct possibility that the actual numbers will be far worse than expected and that's exactly what happened on Tuesday. 

Real GDP fell 1.7% Q/Q and 4.5% Y/Y while Q2's already abysmal -1.9% contraction was revised down to -2.1%.

All of those prints missed expectations and the headline number was worse than all but three estimates from the 44 economists Bloomberg surveyed.

If you dig down a bit further you can begin to see why we've been so adamant about calling this a depression. Here's Goldman with the summary:

Private consumption has now declined for three consecutive quarters (at an average quarterly rate of -8.5% qoq sa, annualized), and investment spending for nine consecutive quarters (at an average rate of -10.0% qoq sa, annualized). Overall, gross fixed investment declined by a cumulative 21% from 2Q2013. The declining capital stock of the economy (declining capital-labor ratio) hurts productivity growth and limits even further potential GDP. The sharp contraction of real activity during 3Q was broad-based: both on the supply and final demand side. Final domestic demand weakened sharply during 3Q2015 (-1.7% qoq sa and -6.0% yoy) with private consumption down 1.5% qoq sa (-4.5% yoy) and gross fixed investment down 4.0% qoq sa (-15.0% yoy). Finally, on the supply side, we highlight that the large labor intensive services sector retrenched again at the margin (-1.0% qoq sa; -2.9% yoy).

Yes, "the services sector retrenched again," and as WSJ noted earlier, "Brazil’s service sector, including beauty salons, banks and realtors, employs more than any other sector in the country by a wide margin, and represents about 60% of GDP." Here's the full breakdown:

"At first read, the report recalls an obituary. There is no room for any growth in the coming quarters. The situation is really, really bad," according to Andre Perfeito, chief economist at Gradual Investimentos, who spoke to Bloomberg by phone. “It’s a substantial hit coming not only from investment, which has fallen nine quarters in a row, but this year the big change is the substantial drop in consumption. We have not seen such a string of bad numbers for consumption," Carlos Kawall, chief economist at Banco Safra and former Treasury secretary added.

This of course comes back to a worsening unemployment picture. Remember, employment fell 3.5% Y/Y and real wages slumped a whopping 7.0% in October. As Goldman put it, "the real wage bill of the economy shrank by a large 10.3% yoy in October; the largest decline since October 2003." The unemployment rate hit 7.9% in August, up from just 4.7% a year ago.

That means people like Rossini Santos, the 43-year old, unemployed steelworker with an $80,000 mortgage and a $17,000 Chevy Prizm note that Bloomberg profiled in October, will have a harder and harder time finding work and thus servicing their debt. "The idea that consumers might not have income to service debt in the years to follow I think is what terrifies them. Even if there is a recovery of sentiment, we believe the labor market will continue suffering throughout the next year, and that will hold down household consumption," Barclays economist Bruno Rovai said. 

Meanwhile, Copom is completely stuck. Inflation is soaring and will likely get worse thanks to lagged FX pass through which means if anything, rates need to rise. As Daniel Weeks, chief economist at Garde Asset Management put in on Tuesday, "the negative GDP may influence BCB, but rising inflation will prevail." That means that Brazil, much like some of its Andean neighbors, will need to consider pro-cyclical policy measures - i.e. Copom will need to hike. 

Bradesco BBI sees two hikes, one in January and one in March. "Although BCB kept Selic unchanged in last meeting, the dissent in the decision (two members voted for a 50 bps hike) and the change in the post-communique text (removing the phrase ‘keeping interest rates unchanged for a sufficient period’) are indicatives that the BCB may change its course of action soon," the bank says, adding that "given soaring inflation expectations, it is now too much of a risk for the BCB to wait and see if the recession will eventually lead to lower inflation in 2016."

So with no counter-cyclical maneuverability, the economy (specifically investment, manufacturing, and the credit impulse) will continue to suffer mightily going forward. We'll close with a quote from Goldman's Alberto Ramos, Brazilian commentator par excellence:

What started as a recession driven by the adjustment needs of an economy that accumulated large macro imbalances is now mutating into an outright economic depression given the deep contraction of domestic demand.

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Tue, 12/01/2015 - 14:17 | 6861622 Spungo
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The resulting unemployment will be a huge boost to Brazil's porn and hooker markets.

Tue, 12/01/2015 - 14:25 | 6861659 r3ct1f13r
r3ct1f13r's picture

Bidding against the Greeks.

Tue, 12/01/2015 - 14:30 | 6861671 Bunghole
Bunghole's picture

They can host the hooker olympics.

Tue, 12/01/2015 - 14:35 | 6861692 pods
pods's picture

Gotta think about synergies. Brazillian waxers+Greek ladies= win win.


Tue, 12/01/2015 - 14:38 | 6861706 Oquities
Oquities's picture

the reduction in butt implants caused the Brazilian GDP drop

Tue, 12/01/2015 - 15:03 | 6861807 BlindMonkey
BlindMonkey's picture

You win ZH for the day!


Tue, 12/01/2015 - 15:12 | 6861850 zuuma
zuuma's picture

Brazil...   brazil...  hmmmmm... what is that? 

Aren't they ones with those big nuts? 

I like those big nuts.


Tue, 12/01/2015 - 15:32 | 6861916 KesselRunin12Parsecs
KesselRunin12Parsecs's picture

aka: 'Nigger Toes" (Brazil nuts) - just sayin'

Tue, 12/01/2015 - 15:44 | 6861990 TalkToLind
TalkToLind's picture

That's alot of wax right there. Long honeybees.

Tue, 12/01/2015 - 16:25 | 6862049 Vullsain
Vullsain's picture

"The resulting unemployment will be a huge boost to Brazil's porn and hooker markets."

However, the labor arbitrage will depress incomes in these industries leading to more economic distress which should dampen demand for these services, creating a vicious cycle of lower pricing . A good type of deflation, since pussy is an overpriced commodity...

Tue, 12/01/2015 - 21:47 | 6863668 Antifaschistische
Antifaschistische's picture

will this be the first total disaster olympics?

Tue, 12/01/2015 - 14:20 | 6861629 moonmac
moonmac's picture

Jobs got pushed up by 10-15 years in my industry. There's no more projects left. Now what???

Tue, 12/01/2015 - 14:21 | 6861631 JustObserving
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Brazil produces about 3 million barrels a day of oil and is heavily invested in that sector.  The drop in oil prices of about $80 a barrel is costing Brazil $240 million a day or $88 billion a year.

That explains the big fall in Brazilian GDP.

Brazil can credit the Nobel Prize Winner's war against Putin for their depression.

Tue, 12/01/2015 - 14:31 | 6861680 Bunghole
Bunghole's picture

But what about all the green ethanol produced from sugar cane?

Tue, 12/01/2015 - 14:35 | 6861695 post turtle saver
post turtle saver's picture

even with that mandated ethanol blends there are E25, so not as big an impact as you would think... contrary to popular belief Brazil isn't running everything on E90...

Tue, 12/01/2015 - 14:38 | 6861702 JustObserving
JustObserving's picture

what about all the green ethanol

That is 0.4 million barrels a day.  So that lost is $32 million a day or $11.7 billion a year.

Tue, 12/01/2015 - 15:33 | 6861925 KesselRunin12Parsecs
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The CIA decided to bomb those tankers because there was less risk of global warming.

Tue, 12/01/2015 - 14:48 | 6861743 piceridu
piceridu's picture

Renewable energy in Brazil accounted for more than 85% of the domestically produced electricity used in Brazil. Brazil started focusing on developing alternative sources of energy, mainly sugarcane ethanol, wind and solar.

Tue, 12/01/2015 - 15:01 | 6861779 ajax
ajax's picture


"Brazil produces about 3 million barrels a day of oil and is heavily invested in that sector."

And Ethanol fuel? The Brazilian Ethanol Miracle? The Ethanol that's "worth" slash and burn environmental disaster? Why isn't Ethanol the 'big earner' we were all told it is?

Tue, 12/01/2015 - 15:38 | 6861950 TalkToLind
TalkToLind's picture

That's because they distill sugar instead of Corn Juice like in Murica. If they used Corn Juice they'd be rich and shit and there'd be no food inflation.

Tue, 12/01/2015 - 15:00 | 6861786 seek
seek's picture

And Mexico is a bigger producer than Brazil. That'll give you a warm fuzzy feeling knowing the same thing but worse is happening just to the south.

Tue, 12/01/2015 - 16:03 | 6862100 MasterControl
MasterControl's picture

Looks like the US is going to get a large load of Brazillian "immigrants' in the near future.

Tue, 12/01/2015 - 14:20 | 6861633 Hype Alert
Hype Alert's picture

Just print.  It'll be fine.

Tue, 12/01/2015 - 16:03 | 6861693 booboo
booboo's picture

Better move the Olympics up and add an event;

How about calling it the Depressalon.

Best total score in:


Drive By Markmanship

Dodging rubber bullets

and last but not least

Skinning a international banker


Tue, 12/01/2015 - 14:21 | 6861641 rita
rita's picture

Like Greece the hookers take 2 euros an hour! How can this be possible?

Tue, 12/01/2015 - 14:55 | 6861769 ajax
ajax's picture


"Like Greece the hookers take 2 euros an hour! How can this be possible?"

It isn't.

Tue, 12/01/2015 - 21:46 | 6863663 wanderer9641
wanderer9641's picture

the article said 4 Euros an hour - still a high price

Tue, 12/01/2015 - 14:22 | 6861643 KnuckleDragger-X
KnuckleDragger-X's picture

Bernenke is looking for a job and this would be perfect.......

Tue, 12/01/2015 - 14:23 | 6861645 I Write Code
I Write Code's picture

I never really looked into Brazil and how they were having a good economy in the first place, they've been on the edge of being a real economy and player for fifty years, but they have that huge underclass that I'd think is incompatible with anything like first-world status.

... makes them a model for the future of the US, I guess.

Tue, 12/01/2015 - 14:49 | 6861749 ajax
ajax's picture



"but they have that huge underclass that I'd think is incompatible with anything like first-world status."

Are you nuts? Who the fuck do you think does all the fucking work for Brazil's encrusted multi-billionaire class? Who makes the place tick? It's that huge "underclass" you mentioned.

Tue, 12/01/2015 - 16:35 | 6862292 Blankenstein
Blankenstein's picture

The shrinking middle class, just like in the U.S.

Tue, 12/01/2015 - 14:23 | 6861648 darteaus
darteaus's picture

Fiat money — coming home to roost!

Tue, 12/01/2015 - 14:25 | 6861655 Chupacabra-322
Tue, 12/01/2015 - 15:26 | 6861901 pods
pods's picture

You can only fuck up like that once!

Tue, 12/01/2015 - 16:14 | 6862176 Tall Tom
Tall Tom's picture

His superiors failed to teach him about backblast and that firing from enclosures is generally fatal.


And this untrained army needs to have Russia, the USA, France, the UK, and the entire World's might against them in order to defeat them?


Just have Russia give them more of the damned RPGs and they will do themselves in.


(That was a Russian RPG 7 after all.)


And then Russia has the audacity to blame NATO for arming ISIS? Obviously they are using Russian Weapons too. Just where do they come from?


Russia...who everybody here believes to be so innocent when they are OBVIOUSLY NOT. Why is THAT not on Russian TeeVee? (Of course it was not on American TeeVee either.)


Is it the same reason that the USA does not want it known as a widespread fact that we are also arming ISIS?


Is there an unspoken agreement between Russia and the USA that the respective Governments will not expose the truth to their public?


Putin arms ISIS so that Russian Military men may die needlessly as Obama arms ISIS so that American Military men may die needlessly.


Now tell me that there is a difference between the psychopathic rulers of Russia and the USA...,


Go ahead. 


Downarrows will not change the truth.

Tue, 12/01/2015 - 16:49 | 6862361 doctor10
doctor10's picture

"Putin arms ISIS so that Russian Military men may die needlessly as Obama arms ISIS so that American Military men may die needlessly."


Putin and Obama share the same banker, 

A new Bentley annually and a couple of months a year in Davos ani't exactly chicken feed!!

Tue, 12/01/2015 - 14:25 | 6861656 venturen
venturen's picture

what liberal corruption has a downside?

Tue, 12/01/2015 - 14:25 | 6861657 Thisisbullishright
Thisisbullishright's picture

But they've got some hot ass chicks!  ;)


Tue, 12/01/2015 - 14:33 | 6861685 MASTER OF UNIVERSE

And hot ass sexually transmitted diseases too!



Tue, 12/01/2015 - 14:41 | 6861715 ajax
ajax's picture


Yeah right, there's always the hot ass chicks.

Hate to tell you but The Girl From Ipanema has breast implants, buttock implants as well as Type 2 Herpes and probably HIV: in other words she's just as infected as is the Bay she's walking to. Ditto all those gorgeous male prostitutes who are her friends.

Tue, 12/01/2015 - 15:34 | 6861932 KesselRunin12Parsecs
KesselRunin12Parsecs's picture

Yeah butt - OBAMA!

Tue, 12/01/2015 - 14:26 | 6861661 Thisisbullishright
Thisisbullishright's picture

All time low hooker prices just in time for the Olympics.  AWESOME!!

Tue, 12/01/2015 - 15:08 | 6861816 ajax
ajax's picture


All time low hooker prices...

Not really - not when you add in the cost of the haz-mat suit you're obliged to wear during sex.

My advice to you: just buy her a burger in exchange for watching her masturbate before she goes home to her children.

Tue, 12/01/2015 - 14:29 | 6861670 aliki
aliki's picture

the term "ironic" has never been more prevelant as it pertains to "black swan". the collapse in the price of oil has, is, and will continue to wreck havoc. santelli pointed out (as did ZH) the last time the ISM/manufacturing data came out so week, we started launching the QE programs here in the states. that was also during a time when iran was under tight economic sanctions, specifically regarding oil exports. also, iraq wasn't even close to pumping what they are now. oil at 41.4, the USD at multi-year highs, and the fed on the cusp of raising interest rates for the first time in a decade. im sure the price of oil is just salivating at the notion of a potential interest rate increase. my personal take has been the will raise 1-2 times in an attempt to show the independent voters that the fiscal conservatives/hawks are wrong & then take them back to zero, followed by negative rates. hawks better be ready to go with a counter-arguement. ie. this ENTIRE "plan" has been upside down & that THE ONLY SOLUTION is to liquidate ALL this fucking public sector debt, initiate a balanced budget ammendment, and let companies/people know that going forward, if we don't got it, we don't spend it. period. that alone IMO will give companies/people certainty that we are not on the path to financial armegeddon. do that and back on the path to normal. keep throwing sugar on this pig and it will taste good temporarily until you get under the surface of the sweet.

Tue, 12/01/2015 - 14:30 | 6861675 SillySalesmanQu...
SillySalesmanQuestion's picture

Only GoldFed would say that "it has mutated"...

Tue, 12/01/2015 - 14:33 | 6861683 tommylicious
tommylicious's picture

i like the hottiez

Tue, 12/01/2015 - 14:33 | 6861684 Bangin7GramRocks
Bangin7GramRocks's picture

Let me know when those hookers go on sale for $4!

Tue, 12/01/2015 - 14:42 | 6861725 MASTER OF UNIVERSE

A few years ago a hooker in Atlanta was offering blowjobs for Chicken McNuggets(tm) in an Atlanta McDonald's Drive Thru(tm), but she got busted. If she is still working for Chicken McNuggets(tm) you should be able to get whatever you want for under $4.


David Letterman said that the hookers in Times Square were offering discounts before he retired. Methinks Atlanta would be the best deal on sale.

Tue, 12/01/2015 - 14:36 | 6861697 Seasmoke
Seasmoke's picture


Tue, 12/01/2015 - 14:39 | 6861704 tarabel
tarabel's picture



Couple of thoughts: 

1) Now that there's been a regime change in neighboring Argentina, it should be about time to fess up on those numbers as well. Wonder how Uruguay is doing.

2) With the possibility of civil unrest going up and the need to provide tight security for an upcoming high-profile event, I know the name of a goon who just lost his job up in Chicago who might be interested in a new challenge. Don't know if he speaks anything other than Dumb Mick, however. Apart from that, he's perfect for the job.

3) Long live the mighty BRICS Bank.

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