Brazil – Whatever Happened? Is There A Silver Lining?

Introduction

In late 2008, I wrote a series of articles with my students at the University of Palermo’s Business School in Buenos Aires. The articles examined the economic impact of the global depression started in 2008 on a selection of Latin American countries. On Brazil, my co-authors (Roberto Flamini and Paula Gomez) and I concluded:

“The 2008 global collapse had little impact in Brazil. In fact, its effects in Brazil were far less than previous global downturns. Overall, Brazil has become one of the soundest economic powers in the world. With diverse exports, a growing middle class, and a broad natural resource base, Brazil’s prospects are excellent”.

And yet, Brazil now appears to be in horrible shape: the country is in recession with GDP projected to fall 2.7% this year. Business and consumer confidence are at record lows with investment and consumption expenditures declining. The government deficit has shot up and is now projected in the FocusEconomics’ “LatinFocus Consensus Forecast” to reach 8.2% of GDP in 2015. And this, after a GDP growth rate of 7.6% in 2010. What happened?

Pundits point to the need to diversify exports and reduce corruption. In what follows, these and other factors contributing to the downturn are considered. But first, Brazil is placed in its Latin American setting.

Brazil in Latin America

Brazil is the largest of the Latam countries, measured by both population and GDP. It is only one of two countries with a declining GDP, the other being Venezuela. Its GDP per capita ranking is about in the middle. A Gini Coefficient is a measure of income inequality with a 0 meaning equal incomes and a 1 meaning complete inequality. Income inequality in Latam is high relative to the rest of the world and particularly so in Colombia, Brazil, and Chile.

Table 1. – Basic Economic Statistics, Latam Countries