Brazil: The Giant has Awoken, or Has It?

Ever since President Lula won the first of his two Presidential elections in 2002, Brazil has grown from strength to strength, while his social policies targeted the poor, bringing millions out of poverty and from welfare to workfare, contributing towards the economy. Today Brazil has proudly announced that it has surpassed the average world GDP per capita. Do we pay attention to the sunshine today or the clouds on tomorrow’s horizon?

Precisely ten years ago, for the first time in my life I felt first-hand the significance of buying power: with ten thousand dollars in cash in my pocket, I could have bought the entire contents of most small and medium-sized shops I entered in Brazil. Ten years ago, a Brazilian emigrant could come to Europe, earn the minimum salary, five years later return to Brazil and if not live like a king, had his life sorted out in terms of a house and a business.

Not so today. 400 Euro is equivalent to around 1,000 Reais, well below the average national income of 1,300 R$ per month, the only advantage being that a Brazilian emigrant who chooses to live like an immigrant in Europe, living ten to a house and spending the minimum, existing rather than living, would save the 1,000 R$ instead of spending it.

New figures released in a study by Brazilian economists, presented in a report by Klinger Portella* point towards the Brazilian Gross Domestic Product per capita reaching the worldwide average by 2010. Nothing new. After record growth rates registered in 2007 to 2008 and the quick recovery from the recession in Q2 of 2009, already by the end of last year the CIA World Factbook was forecasting a GDP/capita earnings of 10,470 USD, based on a 10,200 USD GDP/capita at the end of 2009.

So why the euphoria? Because, according to the same report, Brazil, with the fifth largest population, should finish 2010 with the eighth largest GDP in the world? The latest figures on GDP per capita released by the International Monetary Fund, the World Bank and the CIA World Factbook, reporting to 2009, reveal that Brazil occupied on average a position between 73 and 74 in the world ranking, with an average GDP of 10,380 USD per capita (IMF 75th position, 10,514$00; World Bank 64th position, 10,427$00; CIA World Factbook 82nd position, 10,200$00).

73rd or 74th is hardly 5th or 8th. Figures are relative.

There is no doubt that today, those coming out of Brazil are good. Family consumption is increasing, expenditure with housing (35.9%) is near to the international norm in developed economies while the same can be said for the share from the primary to the tertiary sector: the services sector is at 67.7%, industry 25.8% and agriculture 6.5%.

However, rising inflation has already caused the Brazilian Central Bank to raise interest rates twice this year amid rumours of overheating and this in turn has fuelled the desire of policymakers to tighten the strings of the economy. Given Brazil’s structural weaknesses (unequal distribution of income, where some states have a GDP/capita the same level as third world countries; infra-structures; fiscal policy) and a possible double-dip seeing demand for Brazil’s commodities tailing off, there are clouds on the horizon.

The question remains, will Brazil choose to continue the course of Lula, electing Dilma Roussef, or go back to the old style and old ways of the PSDB, whose candidate is José Serra in the election on October 3?




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Author`s name Timothy Bancroft-Hinchey