brazil
market focus
B
razil is, famously, the‘B’ in
BRICs. Brazil, Russia, India and
China form the quartet of rapidly
growing emerging markets that
were tipped,more than a decade
ago, to be heading for the top table of global
economies. Brazil has certainly lived up to that
promise. Its economy is the biggest in South
America, three times the size ofArgentina, and
now equivalent to those of Britain and France
1
.
After years of erratic economic governance,
culminating in hyperinflation, the country
began a period of improvement with the
creation of the new currency, the real, in
1994. Historically built on coffee exports, the
economy has diversified and today Brazil is a
major exporter of soya beans, orange juice,
sugar and iron ore. In 2007, having been a big
importer of crude oil for many years, it
uncovered some of the world’s largest deposits
of deep-sea oil in its coastal waters.
The commodity boom of the early 21st
century was good to Brazil, boosting the prices
of its minerals and agricultural products.After a
brief lapse in the wake of the financial crisis,
2010 GDP growth peaked at 7.5%, the highest
for a quarter of a century. Jobs and wages were
rising and inequality, an important political
issue,was shrinking. Buoyed by new national
pride and self-esteem, Brazil successfully bid for,
and won, not only the FIFA 2014World Cup,
but also the 2016 Summer Olympic Games.
By now, however, the economy was
overheating.Yes, unemployment was at a
historic low, and consumption and home-
buying at an all-time high, but this was only
made possible by ballooning credit. Since 2010
was an election year, then-president Lula did
little to dampen things down, paving the way
for the victory of his hand-picked successor,
current incumbent Dilma Rousseff.
Rousseff inherited a sluggish world economy
and at a time of slow-down in Brazil’s most
important customer, China. Relatively high
interest rates had attracted money from the
US and Europe, overvaluing the real. Brazil’s
growth plunged – to 2.7% in 2011 and a mere
0.9% in 2012. Hopes for a strong rebound in
2013 proved over-optimistic, with growth
recovering only to an estimated 2.2%
2
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Much-needed reforms, such as raising the state
By Edward Russell-Walling
eyes onthe prize
With theWorld Cup and Olympics about to place Brazil in the global
spotlight, will the events prove to be an economic own goal?
THE INVESTOR
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