Brazil’s Economy Probably Shrank At Steepest Rate In A Quarter Century Last Year As Investment, Consumption Collapsed

Brazil's economy likely shrank in 2015 at its steepest rate in 25 years, a Reuters poll showed Monday, with a sharp drop in the fourth quarter signaling that the economy had yet to hit bottom as investment and consumption collapsed.

Brazil's gross domestic product probably fell 3.8 percent in 2015, according to the median of 38 estimates, in the worst performance of a major world economy last year. Brazil's GDP grew 0.1 percent in 2014.

In the fourth quarter alone, Brazil's GDP likely fell 1.5 percent from the third quarter and 6 percent from year-end 2014, according to the poll. In the third quarter, Brazil's economy contracted 1.7 percent and 4.5 percent, respectively, in the two measures.

National statistics agency IBGE publishes the final 2015 GDP numbers Thursday at 9 a.m. local time.

A separate Reuters poll showed Brazil's GDP is expected to stabilize in the fourth quarter of 2016 but will not return to its pre-crisis level until 2019, raising concerns over the country's ability to pay its debt in the long term.

Economists estimate both investments and consumption fell sharply in the fourth quarter, with UBS economists forecasting a 9.1 percent quarter-on-quarter drop in investments.

Net exports probably offset the drop only slightly, mainly because of a decline in imports as the currency weakened.

The severe GDP contraction, the worst among major world economies, according to the IMF, jeopardizes a recovery in 2016. The statistical carryover from last year will be at around 2.6 percent, economists with Itau Unibanco said.

That, combined with prospects of continued contraction in the first quarters of the year, will probably result in Brazil's GDP shrinking about 3.45 percent this year, according to a weekly central bank survey Monday.

"Given low commodity prices and the lack of sufficient progress on the policy side, medium-term growth prospects remain considerably bleak," Dev Ashish, an economist with Société Générale, said in a research report.