Brazilian Economy is Set For Strong Growth in the Next Decade

In the second quarter of 2009 Brazil economy grew by 1.9% qoq. And although this time an expansion was supported by government spending, at Trading Economics we think that Brazil may keep above average pace of growth for years to come.

Indeed, in the last few months Brazilian economy was supported mainly by the government measures aiming at boosting credit supply and domestic demand. For example, the government has cut taxes and eased bank reserve requirements while the central bank has cut the benchmark interest rate to a record low of 8.75%. In addition, Brazil has built up $200 billion of currency reserves to defend the real and foreign-currency borrowings have mostly been exchanged for real-denominated ones. So, the currency deterioration no longer hurts the government’s balance-sheet.

Yet, those measures could not be effective without strong domestic demand. Indeed, we can’t forget that main driver of Brazilian economy is consumer spending, which accounted for 85% of GDP in 2008. And as long as credit grows, unemployment goes down and wages rise the biggest economy in Latin America will experience stable growth.

Looking further, the diversification of Brazilian economy and positive trade balance are also important factors in future development. For example, not only is Brazil one of the biggest producers of industrial raw materials and agricultural products but also is one of the largest aircraft manufacturers. More importantly, the country is self sufficient in oil production and leader in alternative energy. And it is expected that Tupi fields, discovered in 2007, may contain one of the largest oil deposits in the world and may assure Brazil’s growth for years to come.

Anna Fedec,
9/21/2009 9:36:43 AM