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Brazil Tumbles Deeper Into Its Worst Depression

Brazil's economy has fallen further into its worst ever recession, contracting by 3.6 percent in 2016 and pressure is mounting on policymakers to stimulate growth.

The former Latin American powerhouse recorded a steeper-than-expected decline of 0.9 percent gross domestic product (GDP) in the final quarter of last year, intensifying the economic contraction that has imbued Brazil for eight consecutive quarters — the longest period of decline on record for the country.

Image: Rio de Janeiro state's public servants protest against austerity measures in front of the Rio de Janeiro state Assembly
Government workers in Rio de Janeiro protest austerity measures in November. Yasuyoshi Chiba / AFP/Getty Images

The two-year slump has hit almost all economic sectors, causing unemployment to rise 12.6 percent, according to the data released Tuesday by IBGE, the agency responsible for recording Brazil's economic figures.

Brazil was once one of the world's fastest-growing economies, positioning it as the "'B" in the Brics countries.

However, it has long-struggled with corruption and political turmoil, and recent economic mismanagement has seen the country's GDP slip into negative territory following the end of the commodity super cycle of 2011.

The new figures, released Tuesday, have placed further pressures on President Michel Temer, who stepped into office following the impeachment and removal of his predecessor, Dilma Rousseff, for illegally manipulating government accounts.

Image: Brazil's former President Dilma Rousseff,
Brazil's former President Dilma Rousseff, pictured in September after lawmakers voted to strip her of the presidency. Adriano Machado / Reuters

Shortly after the GDP figures' release, the government announced plans to expand its Investment Partnership Programme (PPI) to encourage private enterprise. It forecasts that the expansion could bring investment worth $14.4 billion and create up to 200,000 jobs.

"We need to do this soon, because what we most want is the fight against unemployment," Temer said Tuesday at a meeting of the PPI Council.

Brazil has also been battling with high inflation, peaking at almost 11 percent in early 2016, its highest level in the last decade. However, forecasts released Tuesday by the Organisation for Economic Co-operation and Development indicate that inflation fell to 5.4 percent in January, down from 6.3 percent in December.

Image: Christ the Redeemer statue
The Christ the Redeemer statue surrounded by low clouds in Rio de Janeiro, Brazil. Jason Reed / Reuters

Some analysts now anticipate a pick-up in the economy, with forecasts suggesting the country will close the years with positive GDP of around 0.5 percent, close to 2014 levels when the economy was buoyed by events including the World Cup.

"In real terms, GDP is now nine percent below its pre-recession peak, Neil Shearing, Capital Economics' chief emerging markets economist wrote in a note. "This is comfortably the worst recession in recorded history. However, we suspect that the fourth quarter should also mark the end of the recession."

Finance Minister Henrique Meirelles told delegates at a meeting of the Economic and Social Development Council (CDES) Tuesday that indicators including supermarket sales, motorcycle production and consumer confidence signalled signs of recovery.

This article was first published on CNBC.com here. Follow CNBC International on Twitter and Facebook.