BRICS may soon mean Bankrupt, Ruined, & Insolvent, Creditors Screwed. The B in the tradition BRICS formulation, Brazil, with its natural resource based economy that isdependent on China’s (the C in BRICS) economic health, is on the leading edge of debt deflation and depression. Throw in a huge scandal at state oil company Petrobas, the expense of hosting the 2016 Olympics, broken promises to fix Rio de Janeiro’s decrepit sewage systems in time for next year’s games, and a president who is getting less than 10 percent approval ratings, and things are looking bleak. From Wolf Richter at wolfstreet.com:
HSBC, which knows a thing or two about the world, and about Brazil, is bailing out of Brazil.
It’s unloading its “entire business in Brazil,” it said this week, including retail banking and insurance. It will hand its long list of wealthy clients and over 21,000 employees to Bradesco, one of the largest private banks in Brazil, for $5.2 billion. Too much? Bradesco’s stock has since plunged over 9%.
Once the deal gets regulatory approval and closes, HSBC is out of Brazil. “The transaction represents a significant step in the execution of the actions announced during the Investor Update on 9 June 2015,” it said. After that update, Reuters had described HSBC’s motivations with these choice words:
For shareholders, betting on Brazil was risky as lenders grapple with tax hikes, weak credit demand, rising defaults, and the impact of what looks likely to be the country’s worst recession in over two decades.
The seventh largest economy in the world in 2014, according to the World Bank, is spiraling down, with private sector output, as Markit put it, falling at the “sharpest pace since March 2009.”
This is how Markit titled its Brazil Services PMI report on Wednesday: “Service sector activity drops at joint-fastest rate in survey history.”
The index hit 39.1 in July (50 is the dividing line between contraction and expansion), the fifth month in a row of contraction, with all sub-sectors in the survey “registering substantial falls in business activity.”
To add to the toxic mix, costs soared, with the rate of increase reaching an 81-month high, third fasted in survey history, due to “inflationary pressures, exchange rate factors, and client fee adjustment.” No green shoots in the immediate future: new orders fell for the fifth month in a row. The “deteriorating operating environment” caused the pace of job losses to accelerate “to a survey record.”
Some companies still nurtured glimmers of hope: 29% of them expected activity to be higher in one year, based on the notion that the economy would somehow recover “in the coming months.”
This gloomy report on the service sector came on the heels of Markit’s Manufacturing PMI report, which had inched up to a less dreadful 47.2 in July, but remained “among the lowest since 2011, reflecting a slumping economy.”
There too were some glimmers of hope, such as the “stabilization” of export orders and slower rates of declines in some categories, but mostly it was unadulterated gloom:
“Brazil’s manufacturing slump extended to July.” New orders and production were in contraction for the sixth month in a row, “with tough economic conditions being widely cited by survey respondents.” Companies tried to control their ballooning costs by shedding jobs.
To continue reading: The Seventh-Largest Economy in the World Spirals Down
