Dilma Rousseff has lost her impeachment hearing, and Brazil’s parliament has removed her from office. But with or without its controversial, now former, President, the Brazilian economy has got deep problems, as recent data shows.
The accusations of corruption against Dilma Rousseff never actually suggested she was illegally taking money. Rather the accusation was that she was illegally moving funds between government departments to disguise holes in government finances to boost her election chances.
But she is gone, last week, Brazil’s Senate voted by a substantial majority to permanently remove her from office. Ms Rousseff says that Brazil has in effect seen a coup d'etat, that she will appeal, but it is thought unlikely that she will win.
For all intense and purposes, Ms Rousseff, and her mentor, former president Luiz Inacio Lula da Silva (Lula) are off the Brazilian political scene.
The markets didn’t like either of them, and ever since the possibility of a Rousseff impeachment first emerged, they have been getting a little more upbeat about the prospects of the Brazilian economy.
Then again, according to data released last week, Brazil’s GDP contracted by 0.6% in Q2, and contracted by 3.8%, year on year.
It was pretty bad across the board, with the exception of exports and a hint of promising news on investment.
Private consumption contracted by 0.7% quarter on quarter and by minus 4.5% year on year. While government consumption contracted by 0.5%, quarter on quarter.
Year on year investment was down 9.1%, but it did at least grow in Q2 compared to the quarter before, up 0.4%.
Exports also rose 0.4% quarter on quarter and by 4.2% year on year.
Neil Shearing, Chief Emerging Markets Economist, at Capital Economics said: "Looking ahead, a combination of a weak labour market, high debt burdens and an impending fiscal squeeze will ensure that consumer spending remains under pressure throughout this year and at least the first half of 2017. Set against this, investment should continue to recover and we expect net exports to make a positive contribution to growth in the second half of this year – although policymakers will remain under pressure to resist further appreciation in the real.”
The new Brazilian President is Michel Temer – the markets like him, but Mr Shearing said: "that while the economy should recover under Temer, the pace of recovery will be weak (our forecast: -2.5% in 2016, +1.5% in 2017). A sluggish economy could jeopardise progress on fiscal reform.”