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- GDP (PPP):
- $3.2 trillion
- -3.8% growth
- 1.0% 5-year compound annual growth
- $15,615 per capita
- Inflation (CPI):
- FDI Inflow:
A political crisis that, along with declines in commodity prices, contributed to a sharp contraction of the economy has undermined consumer and investor confidence. Brazil’s fiscal condition has been severely compromised by a combination of high inflation, political paralysis, and widening budget deficits that have elevated the burden of public debt.
The state’s interference in the economy has been heavy. The efficiency and overall quality of government services remain poor despite high government spending. Implementation of any reform program has proven difficult. Barriers to entrepreneurial activity include burdensome taxes, inefficient regulation, poor access to long-term financing, and a rigid labor market. The judicial system remains vulnerable to corruption.
Brazil, the world’s fifth-largest country, is dominated by the Amazon River basin and the world’s largest rain forest. The population of more than 200 million is heavily concentrated on the coast, where a dozen major metropolitan areas with populations of a million or more offer direct access to the Atlantic Ocean. The current democratic constitution dates from 1988. Workers’ Party President Dilma Rousseff, who sought to further the leftist and populist policy agenda begun by her predecessor, Luiz Inacio “Lula” da Silva, was impeached and removed from office in 2016. New President Michel Temer faces continuing corruption scandals and ongoing political turmoil.
The judiciary, though largely independent, is overburdened, inefficient, and often subject to intimidation and other external influences, especially in rural areas. Corruption scandals have undermined trust in both public and private institutions and contributed to Brazil’s decline in the World Economic Forum’s 2016 Global Competitiveness Index. Many members of the ruling PMDB party, for example, are deeply involved in the Petrobras scandal.
The personal income tax rate is 27.5 percent. The standard corporate rate is 15 percent, but other taxes, including a financial transactions tax, bring the effective rate to 34 percent. The overall tax burden equals 32.8 percent of domestic income. Government spending has amounted to 39.5 percent of total output (GDP) over the past three years, and budget deficits have averaged 6.4 percent of GDP. Public debt is equivalent to 73.7 percent of GDP.
Organizing new businesses remains cumbersome and bureaucratic. It is costly and time-consuming to launch or expand a business. Rigid and outmoded labor regulations undermine employment growth, and the nonsalary cost of employing a worker is burdensome. The new government has pursued more orthodox policies than its predecessor and plans to cap increases in budget spending and eliminate automatic indexation of entitlements.
Trade is moderately important to Brazil’s economy; the value of exports and imports taken together equals 27 percent of GDP. The average applied tariff rate is 7.8 percent. Trade and investment face bureaucratic and regulatory hurdles. The financial sector is diversified and competitive, but the government’s involvement remains considerable, and public banks now account for over 50 percent of total loans to the private sector.