World Economy

Rousseff’s impeachment ‘no panacea for Brazil’s economic ills’

Rousseff out in Brazil
Brazil's Rousseff removed from office
Brazil's inflation is slowing, but slowly: Economist

The removal of Dilma Rousseff from the presidency of Brazil is unlikely to speed up the country's recovery from a severe recession, economists say.

The Brazilian Senate voted 61-20 in favor of dismissing Rousseff for budgetary infractions on Wednesday. She has been replaced by her former deputy, Michel Temer, who is perceived as more business-friendly and likely to push for necessary fiscal and structural reforms over social spending.

Michel Temer listens during an interview in New York, U.S.
Jin Lee | Bloomberg | Getty Images

While Brazilian financial assets have rallied this year on anticipation of Rousseff's ouster — the Bovespa index has rallied over 33 percent and the real has gained nearly 18 percent — Fathom Consulting said her impeachment was "unlikely to be a panacea for the economy's ills."

"While the worst of Brazil's economic downturn is probably behind it, we expect the recovery will be sluggish," the macroeconomic consultancy said on Thursday.

Brazil posted its sixth consecutive quarter of economic contraction on Wednesday. Its economy shrunk by 0.6 percent in the second quarter on the first quarter, official data showed. However, the International Monetary Fund sees the Brazilian economy growing by 0.5 percent in 2017, after shrinking by 3.3 percent this year.

Temer is expected to tackle Brazil's large budget deficit by attempting to cut social spending, in particular Brazil's generous pension system. However, he is seen struggling to push reforms through Congress and has a small window to do so before it breaks for the Christmas/Carnival recess which lasts up until the end of February.

"The strategy of pursuing structural fiscal reforms over immediate policy tightening is sensible but will face resistance in Congress and measures are likely to be diluted," Neil Shearing, chief emerging markets economist at Capital Economics, said in a report on Wednesday.

Brazilian financial markets


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