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Mixed Bag for Brazil

Slowing growth is eliciting misguided policy responses from Brazil's government, argues Lord Abbett's Milton Ezrati.

By Milton Ezrati | Updated on October 31, 2012

Milton Ezrati of Lord AbbettFor the last 80-plus years, Brazil has been perpetually on the verge of becoming the next economic powerhouse but never quite made it. It is easy to see the potential. The nation is large and rich in natural resources and arable land. It has a sizable, active, some might say hyperactive, population and well-developed trade relations in the Americas and with Europe and Africa. Brazil has failed to realize its potential less for economic reasons than because of misguided government policies. So too today, after great expectations built up over the last decade, Brazil seems to be disappointing again, and for much the same reasons. Not everything is negative and policy is nowhere near as misguided as in the past. It would be a mistake to count Brazil out. But the picture is worrying nonetheless.

During the last decade, Brazil very much looked as though it would at last fulfill its promise. Both the real economy and industrial production grew at a vigorous 4% a year. Even after the global recession of 2008-2009, Brazil seemed to sustain its promise. The year 2010 saw the country’s real gross domestic product (GDP) expand 7.5%. But then things stalled. Real GDP expanded only 2.7% in 2011. During the first half of this year, the most recent period for which complete data are available, real GDP barely registered positive, expanding a mere 0.25% compared with the same period in 2011. Business investment, critical to an emerging economy, actually dropped 0.7%. Brazil’s central bank now forecasts a disappointing 1.6% overall growth rate for this year as a whole.

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