Brazil Maybe The Next Large Economy to Collapse

Not a long time ago, Brazil was growing at the fastest pace since the 1990's and no one would expect the global economic crisis to have a significant impact in the biggest national economy in Latin America.

In fact, during the last few years, the main driver of the Brazilian economy has been the exports of agricultural and industrial commodities. So, as long as the global economy was performing well and the commodity prices were high, the trade surplus along with the fiscal surplus was growing. Brazil was attracting foreign capital and it is estimated that during a series of share issues, about 70 per cent of money came from overseas investors.

Yet, as the global financial crisis begins to get worst, the demand for Brazilian products is deteriorating which is resulting in a sharp slowdown for the Brazilian economy. In addition, the sudden sell off the currency prompted failure on foreign-exchange derivatives and instead of helping the companies to hedge the currency exchange risk brought them more losses. Since the beginning of the year the Bovespa stock index lost 43% of its value and the Brazilian real depreciated more than 30% against U.S. dollar. To make things even worst, a weak real is making imports more expensive and bringing back inflation fears, at a time that lower interest rates are needed to promote sustainable growth.

Anna Fedec,
11/18/2008 12:27:05 PM