Brazil's bust is worse than we thought

Latin America hit by China slowdown

Brazil's economy endured a brutal 2015 and it's looking like it may be deja vu in 2016.

The International Monetary Fund sharply downgraded its economic forecast for Brazil Tuesday. It was by far the largest revision of all major countries, according to its World Economic Outlook.

Brazil fell deep into a self-inflicted recession last year -- the longest downturn for the country since the 1930s. The IMF and other forecasters thought Brazil would still be in a recession this year, but it wouldn't be as bad as 2015.

Nope.

"The recession caused by political uncertainty amid continued fallout from the Petrobras investigation is proving to be deeper and more protracted than previously expected," the IMF said.

The economy over the past year has unraveled as investment has plummeted. Unemployment has shot up, inflation is soaring and the country's currency, the real, has lost 35% of its value.

The IMF now believes Brazil's economy -- the largest in Latin America -- will shrink 3.5% this year, down significantly from its previous estimate of a 1% contraction.

Latin America was originally projected to grow a little this year, but the IMF changed course with its Brazil revision and estimates the entire region's economy will shrink for the second year in a row.

Related: 5 reasons Venezuela is in a 'meltdown'

Brazil shrank 3.8% last year, the IMF reports. In other words, the light at the end of the tunnel may not come in 2016.The IMF revised down its global growth projection for 2016, citing the major correction to Brazil as one of the reasons.

Latin America was originally projected to grow a little this year, but the IMF changed course with its Brazil revision and estimates the entire region's economy will shrink for the second year in a row in 2016.

Brazil is suffering from a few key factors. Its economy relies on commodities like oil, soy and coffee. Commodity prices have fallen off a cliff in the past year, which hurts economic growth in developing countries.

But other commodity-driven countries are still growing despite the crash in prices. Brazil is also suffering mightily from political instability and the ongoing investigation into the bribery scandal at the government-run oil company Petrobras.

Related: Latin America's brutal start to 2016

A massive kickback scandal involving high-level politicians, company execs and middle men was first exposed in September 2014, and revelations continue to unfold. Congressmen, Petrobras employees and even a billionaire have been arrested or imprisoned.

Related: IMF: China and oil will drag down global growth

Foreign investors have fled Brazil as the corruption case has expanded. Many Brazilians have called for the impeachment of President Dilma Rousseff, who has a mere 12% approval rating. In 2012, her approval rating was 65%, according to Brazilian polling firm Datafolha.

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