Brazil's Recession Leads to Tough Times for Surrounding Nations

Brazil’s economy shrank 1.7% between July and September, marking the third straight period of economic contraction. As Brazil’s economy has slipped further into recession, it has led to the downfall of its surrounding nations’ economies. Being the largest economy in Latin America, the slowdown could be detrimental to its neighboring nations’ economic growth.

The effects can clearly be seen in Paraguay, where, around this time of year, many Brazilians cross the border to shop and to take advantage of lower taxes and cheaper goods. This year, however, has been very slow, as some store managers are saying it has been one of their worst selling years in a decade. Rising unemployment, high inflation and high household debt have together drained the spending of Brazilians.

Most of the markets in Paraguay and Brazil peg their prices to the United States dollar (USD). While the dollar strengthens against many eligible currencies in South America, buying goods has become even more expensive for the residents. Also, many of these Brazilian shoppers buy the goods in Paraguay to resell in Brazil, but have had trouble on both sides of that equation as of late.

All of these factors have been compounding in the Brazilian economy to continue to fuel the recession. It is expected that the economy will shrink 3-4% in the next period, marking the largest decline since 1990. If Brazil is unable to enforce any of its fiscal changes, it is unclear how long the economic distress will continue. One thing is for sure – it will be a slow holiday season for stores in Brazil and the surrounding nations. What do you think Brazil needs to do to stabilize its economy? How and when will they recover?