Why Brazil stands out

 
August 2010

Brazil is on fire these days, and it's not just on the soccer pitch.

The country's economy is surging at its fastest pace in nearly 15 years, unemployment has fallen to levels not seen in a decade and Brazil's central bank is ratcheting up interest rates to tamp down inflation. Last night, the Banco Central do Brasil raised its key benchmark rate three-quarters of a percentage point, to 10.25 per cent -- the second such increase since April.

The economy expanded by a whopping 9 per cent in the first quarter from a year earlier, fuelled by hot domestic demand and vastly increased investment. Its annual growth rate for the past three quarters clocks in at 10 per cent, and the government expects growth for this year of at least 6 per cent.

The torrid clip highlights what Bank of Canada Governor Mark Carney has called the "uneven" growth of economies emerging from the worst global slump since the Great Depression. While Europe's debt crisis threatens to plunge the region back into recession, Japan continues to stagnate and the North American recovery looks increasingly fragile, many so-called developing countries are racing ahead in Asia and Latin America.

Brazil is quickly emerging as one of the key drivers of emerging-market power and by some measures boasts the healthiest of the BRIC economies. Unlike China, it has so far not had a significant problem with asset bubbles, and policy makers are determined to keep it that way. India has more serious inflation woes, and Russia's economic performance remains heavily dependent on energy exports to such key slowing markets as eastern and central Europe.

By contrast, Brazil, Latin America's biggest economy, has been able to weather the global storms thanks to its burgeoning domestic market.

Brazil has entered "an era where it is shining," said Queen's University business professor David Detomasi. The country "has been overshadowed by people quoting the enormous growth rates of China, or the outsourcing and IT of India. But Brazil has enormous economic potential. It's a bit of a fog why people haven't tapped into it already." India is hampered by uneven wealth distribution, and an inflation rate that's among the highest in the world at 13.3 per cent. In Brazil, by contrast, job creation and rising wages mean the middle class now represents the largest segment of the population.

Demands for Brazil's rich natural resources are a key source of optimism about the country. Momentum should also come from its hosting of the 2014 World Cup and 2016 Olympics.

It's enough that the perception of Brazil as a "developing" nation should disappear, said Prof. Detomasi. "The world needs to rethink what developed and developing means. Brazil is at the front of the next tier of countries that are on the way to being industrialized - and in some areas [such as the aircraft industry] they're already at the first tier."

Brazil has long been known, in emerging market circles, as the country of the future -- one that's perpetually on the brink, but never quite realizing, its enormous economic potential.

"Well this time, the joke may very well be on us in coming years," Royal Bank of Canada wrote in a March report. Strong demand for commodities, economic reforms and positive investor sentiment toward the country mean "Brazil is about to embark on a ‘growth miracle' for the next five years (at least)."

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