22/08/2013
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During the years preceding the 2008 crisis, the Brazilian economy experienced a period of consistent growth, mostly based on credit growth and commodities boom.
5.7%
1.2% -0.3%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
During the last two years, growth has been slow mostly due to high industrial costs, structural inefficiencies and lack of a properly educated labor force.
2012
*- Forecast
Even considering the current GPD stagnation, the unemployment rate remains consistently around its historic low.
In order to stimulate economic activity, the Central Bank has pushed the benchmark interest rate down to its historic low.
In spite of the current low activity, inflation remains stubbornly high. The market has already built-in the expectation that the CB no longer pursues the central target (4,5% an.) but the upper bound (6,5% an.) of the inflation targeting system.
5%
Some advocate that the government and the CB have abandoned the framework that has been the cornerstone of the Brazilian economic policy during the last decade, which comprises the Inflation Targeting System, Primary Fiscal Surplus and Unpegged Exchange Rate.
0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Current
CPI (%)
Public Sector
The Brazilian government has a history of spending too much and inefficiently, compared to international standards.
67%
65%
65%
64%
Even with the lower interest burden throughout the years, the government budget remains negative around the 2,5% level.
-4.4% -5.2% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Current
Even so, public debt has been declining from the high levels achieved during the 90s.
Govt Budget
Brazil has long been known for its first-world taxation but third-world public services. The Brazilian tax burden is similar to the OECD average, which is way over the other emerging markets' level.
35%
28%
27%
In addition to its high taxation, the Brazilian government spends its revenue mostly on ear-marked current spending.
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Emerging Markets
OECD
Brazil
Investments in infrastructure amounts to only 2,5% of GDP, way below the countrys necessities.
External Sector
Due to its low public and private internal savings rate, Brazil resorts to external savings to invest.
The current account deficit has been widening during the past years due to the still high levels of real interest rates and the necessity to attract external savings.
The current account deficit has been financed mostly by the also increasing foreign direct investment and trade balance, which has been favored by the high commodity prices.
-1.5%
2002
2009
Due to the great interest rate differential and trade surplus, the Brazilian Real has gone through great appreciation during the last decade.
2.9
2.4
1.8
To smooth this trend, the Brazilian Central Bank has been building up foreign reserves at a fast pace.
40
49
53
54
The maintenance of this high stock of reserves has a built-in cost due to the differential between the interest paid on the reserves and the interest the Brazilian
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 Current
During the last year the Brazilian government has perceived some policies aiming to address the lack of competitiveness of the countrys industrial sector and the lack of infrastructure, in order to revive growth, among them are:
Measures to decrease the high energy costs to the final consumer and industrial sector, which includes decreasing the tax rate on the sector and renegotiating contract renewals with better conditions.
Lowering the labor tax paid by employers. Bestowing to the private sector the management of three of the biggest airports of the country. Pressuring banks to lower the bank spread.
Some of these measures have stirred up some criticism concerning the increase of the
governments sway on the private sector.