Brazil’s Economy: What is Next?

Following six consecutive quarters of below-trend growth, Brazil’s economy seems to be slowly recovering. In the fourth quarter of 2012, the output expanded seasonally adjusted 0.6 percent compared to previous quarter and 1.4 percent compared to same quarter a year earlier. But without significant changes in the government policy, the growth may never return to levels seen before 2009.

Indeed, as the prices of commodities are stagnating, the exports can no longer support high rates of growth. Also, stimulating the consumption is not a way to go, as people will sooner or later need to repay their loans. That said, higher competitiveness, productivity and investment may be a long term solution. As such, some efforts have been already undertaken to help local businesses. Since October 2011, the Central Bank has slashed interest rates by 5.25 percentage points, to 7.25 percent. This move not only reduced the borrowing cost but also weaken the currency. Also, the payroll taxes for industry have been reduced. And the government is planning to cut electricity tariffs, which are one of the highest in the world and allow private companies to participate in the infrastructure projects. Yet, will focusing on industry without stimulating services and reducing the red tape and the role of government really help?
12/11/2012 3:23:17 PM