Unemployment hit a five-year high of 7.5 percent this year, and experts say that number will keep climbing. Next year the economy, the world's eighth largest and the biggest in Latin America, is expected to contract 2 percent, and Brazilians are feeling the pain.
"Everything is really expensive now. One year ago, I would spend 200 reals (about $60) at the supermarket. Now I spend double," said Juliana Bueno, a Brazilian nutritionist who's seen her income drop as clients cut back on visits and on spending.
"It's a really difficult situation, and I don't see when it will end." In the past 12 months, the Brazilian Bovespa stock index has plunged 21 percent. The Brazilian real has lost half of its value against the dollar in the same time period. Brazil's economic troubles only paint half the picture.
A corruption scandal around the state-controlled oil company Petrobras, which has led to the arrests of high-profile business and political leaders, has shattered President Dilma Rousseff's credibility with the Brazilian public.
Her approval ratings have dropped to a record low, hovering near 8 percent. Although Rousseff has not been directly implicated in the scandal, she's been scrutinized because the bribery scheme occurred when she served as chair of the company's board.
On Sunday, hundreds of thousands of Brazilians turned to the streets calling for the impeachment of Rousseff, who began her second term seven months ago.
Brazil is also getting crushed by a global bust in commodity prices, spurred by an economic slowdown in major commodities consumer China. "Commodity prices are dropping globally as China's economy evolves.
The need for the massive amounts that they were importing 10-12 years ago isn't there anymore, and there are very few alternative markets for Brazilian products," said Riordan Roett, professor and director of the Latin American Studies Program at Johns Hopkins.
Brazil has faced simultaneous political and economic crises in the past, most recently from the mid-1980s to the mid-1990s, when it dealt with hyperinflation and a president who was impeached for corruption.
"Brazil, in worse (times) than where it is today, has shown a lot of resilience in getting out of crisis, so my take is (this is) just another crisis," said Alan Gandelman, CEO of ATS Brasil, a Brazilian company jointly owned by Americas Trading Group and the New York Stock Exchange. Crises usually present opportunities for investors, Gandelman said.
Before former President Lula da Silva was elected, investors feared that the leftist politician would default on the country's debt if elected. That uncertainty destabilized Brazil's markets and put a brake on the economy. But the fear was unfounded: During da Silva's term, the South American economy boomed and became a darling of investors.
"It was a cycle. Everybody who managed to get in the acute phase of the crisis, which was the pre-election of Lula, benefited a lot," Gandelman said.But for Brazil to get back on the track of growth, it needs major fiscal reforms, which have been politically difficult to implement, experts told CNBC.
The current market-friendly finance minister, Joaquim Levy, has tried to cut spending and increase revenue, but his measures face major opposition in congress.
The legislative body recently approved a bill to raise government wages, making it more difficult for the government to balance its public accounts.
"It's a constant struggle between the finance ministry, central bank and the Brazilian congress, which is a very fractured congress, which doesn't believe in fiscal discipline and doesn't understand fiscal discipline," Roett said.
On Wednesday, after months of disagreements, Brazil's Senate passed a key austerity bill that would raise taxes on companies—a big win for Rousseff's government, which is trying to maintain the country's investment grade.
Standard & Poor's cut its outlook on Brazil's rating to negative from stable this month, putting the country's credit rating at near-junk status.
If Brazil's credit rating is downgraded to junk, then "Many mutual funds, for example, wouldn't be able to invest in Brazil and the cost of Brazil borrowing in the global markets would increase," Roett added.
cnbc.com
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