Brazil faces recession, Rousseff under pressure as drought drags on

martes 3 de febrero de 2015 13:46 GYT

By Anthony Boadle and Caroline Stauffer

BRASILIA/SAO PAULO Feb 3 (Reuters) - A severe drought is accelerating Brazil's expected descent into recession, adding to President Dilma Rousseff's woes as she takes unpopular austerity measures and faces economic fallout from a corruption scandal at state-run oil company Petrobras.

Sao Paulo, Brazil's largest city, has nearly run out of water and the whole country faces power rationing as the worst drought in more than 80 years dries up hydroelectric reservoirs.

The water and energy shortages are hitting just as the government moves to cut spending and raise taxes to restore business confidence shaken by her interventionist policies and revelations of a massive kickback scheme at Petrobras.

Executives at leading engineering firms have been arrested in the corruption case and thousands of construction workers have been laid off, further hampering the economy as work is slowed or halted on major infrastructure projects.

The economy appears on the verge of its second recession in a year and even low unemployment numbers, a bright spot of the economy in the last decade, are expected to start rising.

Inflation is expected to top 7 percent despite double-digit interest rates.

"We know this first quarter will be terrible. We're not hiding that fact," a member of Rousseff's cabinet told Reuters.

The minister, who asked not to be named, said water rationing looks inevitable in the three largest metropolitan areas - Sao Paulo, Rio de Janeiro and Belo Horizonte - home to nearly 40 million people.   Continuación...