Impact of Lava Jato on Brazil’s GDP Could Reach R$140 Billion

By Lisa Flueckiger, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – The Lava Jato (Carwash) corruption scandal in Brazil involving oil giant Petrobras and some of the country’s largest construction companies is said to impact Brazil’s GDP by R$142.6 billion in 2015, according to calculations by consultancy firm GO Associates. This would be equivalent to 2.5 percent of the country’s economy.

In April, when the consultancy had published first estimates about the impact of the scandal and its ongoing investigation on Brazil’s economy, the amount they calculated had only been at R$87 billion. The forecast was then increased to R$187.2 billion, or 3.4 percent of GDP, after recent developments in the investigation of the scandal.

After Petrobras published their new business plan, including a reduction of investments by 37 percent between 2015 and 2019, the consultancy decreased the value of the estimated impact to the R$142.6 billion that were published today by G1. Programs like the plan for investment in infrastructure might reduce the impact even further.

“The impact will be somewhat lower, but still very significant. In the last calculation we included a reduction of Petrobras’ investments by 42 percent,” Gesner Oliveira, professor at FGV and partner at GO Associates, explained.

The study tried to estimate the combined effects of lower investments by the oil giant and in the public construction sector, which was estimated to contract by thirty percent, including losses in the gross value of production, jobs, wages and tax generation.

They calculated that R$22.4 billion will be lost in wages and R$9.4 billion in taxes and up to 1.9 million direct and indirect jobs could be cut.

“Unfortunately, the bulk of layoffs has not yet occurred [in these two sectors]. But I don’t believe that at the end of the year we will have two million fewer jobs in the country overall. There are other sectors that will expand in spite of all the problems,” Oliveira continued.

Brazil’s Ministery of Work estimates that around 800,000 to 900,000 jobs will be cut during this year. The GDP overall is expected to decrease by 1.97 percent in 2015, according to the Central Bank’s latest bulletin.