Brazil economy is slowing down

Brazil economy is slowing down



Author: Elisa Mariani
Translated by: Lorenzo Giusepponi
September 2016

During the last decades, thanks to the policies adopted in order to maintain institutional balance and face the excessive increase of inflation rate registered in the 1990s, Brazil has become one of the major emerging countries and a favorite destination for foreign investments.

Its economic growth has also been eased by the country’s entry in Mercosur, South America common market, founded in 1991, whose member states are Brazil, Uruguay, Paraguay, Argentina and Venezuela.
Thanks to this organization, the free movement of goods and services has been possible and the purchasing power of member states in relation to non members has been strengthened.
In the Mercosur founding treaty, signed in Asunción, the member states agreed to respect the environment, human rights, democracy and the fight against poverty, as a demonstration of a significant ethic commitment.

In addition, the country stood out as a highly appealing power for its industrial development, above all in the oil, infrastructures, tourism, renewable energies, convenience goods, chemical and cosmetics sectors.

Brazil main row materials are coffee, cotton, grain, sugar and nickel. The mainstay of Brazilian economy is manufacturing, representing 70% of exportations. The service sector is the most important as it accounts for 38.5% of production, followed by industry at 31.9% and agriculture at 29.6%.

In Brazil, which is a developed country, wealth is not well distributed among the population, with consequent large economic and social inequalities that affect the major part of the population. Current unemployment rate is at 11.3% against 7.4% of July 2012, a fact that should be taken into consideration together with the 4 million people demographic increase registered in the last four years.

At the same time Brazil is important at international level because of its membership to the BRICS group (Brazil, Russia, India, China, South Africa), economically emerging countries which have seen different development processes. The Brazilian economic boom took place from 2001 onwards, when the index of revenue concentration, which on average was between 0.23 and 0.45, reached 0.553, one of the highest ever registered at global level.

Also, in 2001 Brazil middle class saw an increase of 30 million people, which shows the prosperity of that period. However, during the last years Brazil economy has seen a gradual downturn as data about Purchasing Power Parity GDP demonstrate. In fact, in 1978 Brazil GDP was at 12.1%, not much below China’s (12.9%), but in 2013 the difference between the two countries significantly broadened with a 12.6% GDP for Brazil against China 90.1% GDP.

Such economic stall is mainly caused by four factors: the high lending interest rate, which is around 10%, the fluctuation in the price of raw materials, insufficient investments in the Research & Development sector and the policies carried on by Lula da Silva and Dilma Rousseff administrations that aimed to keep stability and that turned out to be generally unsuccessful.

Politicians have thought that the solution to the problem of economic growth was to encourage the demand, ignoring the possibility of betting in investments to help the country. However, there are also positive data given by the press agency Agencia Brasil, which has registered an increase of 20 million people in the highest consumption level, a first step in the growth of domestic demand.

So, in spite of showing a downturn in economic growth, Brazil is still a highly appealing country for its business opportunities.

Source: “Brasile: l’attrattività nonostante il rallentamento economico” (Brazil: still appealing despite economic downturn)