Solid Economic Performance And Prospects

Many would be surprised to learn that Brazil is the 6th largest economy in the world. Although the Brazilian economy slowed significantly over 2011 and 2012 (annual GDP growth of 7.5% slowed to 2.7% in 2011, and came to 0.9% in 2012), the recent stimulus measures taken by the government suggest that the business cycle will start to gather forward momentum again. Furthermore, Brazil’s strong domestic market is less vulnerable to external crisis, and Brazilians are benefiting from stable economic growth, relatively low inflation rates and improvements in social well-being. 

Solid Economic Performance And Prospects Continued...

The financial sector has also performed impressively during the slowdown. Brazil never entered into a recession during the 2008 financial crisis and the banking system has remained sound and resilient (it was viewed as one of the strongest financial systems in the world during the financial crisis)

Despite rapid credit growth, the lowering of interest rates has allowed asset quality to broadly stabilize. Foreign direct investment remains more than sufficient to cover the current account deficit, which has hovered around 2.2% of GDP. 

In 2012, the Government launched a range of initiatives to reduce energy costs, restructure oil royalty payments, strengthen investment in infrastructure through foreign participation, and reform the subnational value-added tax.

In the words of Brazil’s Finance Minister Guido Mantega ”although 2012 was a year of global financial crisis, it did not knock on the doors of Brazilians. We had an expansion in total wages, income and employment.  It was a good year for the majority of the population, despite a GDP performance below expectations. The 2012 fourth quarter results indicate that the Brazilian economy is in a process of gradual acceleration. This acceleration will continue throughout 2013, which points to an expected growth of between 3 and 4 percent for this year”. 
Source: The World Bank

President Dilma Rousseff, the first ever female president in Brazil, voted into office in 2010, continues to see over the social and economic programme initiated by the previous government, led by former president Lula, furthering enhancing widespread economic reform, such as the encouragement of foreign investment (including the Logistics Investment Program, that will draw $526bn in investments for various projects beginning 2013) and the repayment of foreign debt.  

Despite a recent rise in interest rates to ease inflationary pressures, interest rates in Brazil remain at historically low levels.  Brazil also a huge trade surplus, driven largely by its vast array of natural resources and exports to the rest of the world. This trade surplus and accumulation of foreign exchange reserves will only continue, as recent oil finds come on line and as Brazil’s prowess as an emerging agricultural superpower increases, as well as environmentally driven exports of bio-fuels, such as ethanol. Whilst there has been a recent increase in the level of inflation, it still remains at historical low levels, something which continues to benefit the poor.

The depreciation of the Brazilian Real boosted exports in 2012, particularly those who have to compete with lower cost rivals in Argentina and China.
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