What's going on?

Brazil�s economy only grew by .3% GDP in the last quarter of 2014, fueling concerns that the country is facing its worst recession in the last 25 years. Some economists predicted a more drastic decline in GDP and so were surprised by this outcome. Furthermore, investment in GDP declined to 19.7% last year, validating that Brazil�s consumption led model for growth is no longer working.

What does this mean?

Economists are concerned that the country is overly relying on consumer spending to spur economic growth, while weaknesses in the Brazilian labor market pose a major barrier to consumer spending. More concerning is the lack of investment in the country and the fact that government spending and state economic intervention have failed to produce an increase in economic growth. Brazilian President Dilma Rousseff is having difficulties attracting private sector investment and containing the growing budget deficit, further complicated by a widespread corruption scandal facing Petrobras, one of the countries largest state-controlled oil companies. Prosecutors allege that for the past decade oil executives conspired with government and construction firms in the form of billions of dollars of bribes and funds towards political campaigns. Petrobras accounts for 10% of total investments in Brazil.

Why should I care?

Widespread corruption scandals will negatively impact anyone living in Brazil, where the Petrobras allegations have already prompted job loss and made investments in the oil and construction industries come to a halt, further damaging the economy. Furthermore, a new corruption scandal involving the tax appeal board allegedly cost Brazilian taxpayers up to $6 billion. I would not advise any investments in Brazil at this time even with the upcoming World Cup and Olympics. Emerging economies have always been riskier investments and given Brazil�s slow rate of growth and economic issues compounded by corruption scandals this is not a good time to invest. Since Petrobras is such a big player in the global oil market it would be prudent to watch the affect of the corruption scandal on worldwide oil prices.