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AB 2000 studies

Alain Boublil Blog

 

Brazil : A resilient economy

Today, we are interested about the Brazilian economy much more to denounce Amazon deforestation, which, anyway, is not fully located inside its borders, than to analyze its achievements, its growth, its inflation or its financial weakness. Time is not so far when, due to the breathtaking ascension of its currency, the real, the country was not far from France in the ranking of the major world economies. It was included, with China, Russia and India, in the BRICS group to which was added South Africa in order to this continent was present in it.

If the country has seen its weight in the world economy falling, it has been successful, to the different of Argentina, in not returning into inflationist crisis which damaged its international reputation. After a quasi-stagnation period between 2014 and 2018, growth had then rebounded. The recession provoked by the pandemic has been less important than in the developed economies (-3%) and growth has rebounded with +5% in 2021 and +2.9% in 2022 according to the first published estimations. To the opposite, the forecast for 2023 shows a new slowing (+1%).

Brazil is away from the major international tensions, whatever it is the war in Ukraine or the degradations of the relations between China and the United States. That allows it to being less hurt by the inflationist wave. Prices increase would reach 5.8% in 2023, above the 3.5% objective adopted by the Brazilian Central Bank, but inferior to what is observed in most of the developed economies. It is reinsuring when we refer to the heavy past of the country in that domain.

It has even profited, as a raw materials producer and exporter from the perturbations in the supply chains and has realized in 2022 a 60 billion dollars trade surplus. The putting into operation of the huge shale fields in deep waters off its coasts has allowed it to not depending anymore from the traditional producers in Latin America, Venezuela and Mexico. Investments in the farm sector has made possible the development at a large scale of soyabean, meat and poultries. But the trade surplus is not high enough to reestablish the equilibrium of the current accounts balance which remains with a 40 billion dollars deficit.

Two lines explain, for a large share that situation. Financial revenues realized by international groups in Brazil and repatriated in their country of origin are not compensated by the reverse flows of the Brazilian groups because these ones are few active outside of their country. Globalization is, in this case, a one-way one. The second reason is much more surprising and revealing of the weaknesses of the Brazilian model: the tourism deficit. There are much more Brazilians who travel outside of their country than foreigners coming to visit Brazil. That is all the more surprising that the country, with its sceneries, its writers, its artists or its architects has an indisputable international influence.

But the successive governments have never made tourism a priority of their economic policy and, set aside the Rio de Janeiro region, nothing is done, regarding infrastructures or hotels equipment, to incite visitors to discover the charms of a country which doesn’t lack of them. That fragile financial situation has not, until now, constituted a threat. Foreign currencies reserve of the Central Bank overpass 360 billion dollars. But the country foreign debt has reached 3000 billion dollars and the interests the country pay on this debt also contribute to the balance of payment deficit. In an environment where interest rates increase globally, that definitely can constitute a threat. To the opposite, the public finances situation, partly thanks to the receipts the State takes from the production and the sale of oil, is much less alarming than in some European countries because the public debt represents 75% of the GDP, a ratio which could rise to 78% in 2023.

Two other growth factors seem to be absent in the government preoccupations, the ecologic transition and the reduction of inequalities which could favorize household consumption and so employment. We see few investments in renewables, which is surprising in a country which is not short of wind and of sun. One of the advanced reasons is about the heavy investments which would be necessary in power transportation because the windfarms and the solar panels would be very far from the consumption places.

We see few efforts to reduce fossil fuels consumption, gasoline price is around one euro per liter and the electric car is almost absent. In the big cities, every night, for safety reasons, powerful lamp posts illuminate the streets. Carbon capture capacities of the forests allow to showing a carbon evaluation less unfavorable but the reduction of the surfaces with woods to the profit of fields producing agricultural products, and especially soyabeans, reduce, year after year, the efficiency of the actions of the country in favor of the fight against climate warming.

The Brazilian social model has not reached a level enough to guarantee a balanced development. The weakness of the healthcare system  and the inefficiency of education are factors which make inequalities worse. They had been partly reduced during the first mandate of the president Lula, but the ‘Trumpist philosophy” of the president Bolsonaro had put a stop to the social progress search and to a more shared prosperity. Inequalities, especially in the big cities, are frequently at the origin of the delinquency increase. To fight against them, local authorities as the residents, are spending important amounts of money to be protected against it, but these expenditures are unproductive and cannot constitute one of the growth engines the country needs.

Brazil has better resisted than many other countries to the successive crisis which have hurt the world economy. It has even profited from the rise of the oil and of the raw materials prices. But that situation is by nature transitory and could not constitute a long term answer to the challenges the country is facing. It is so the duty of the new government, appointed after the reelection of the president Lula to invent a new social model which is both a remedy to the internal unsafety of the country and a factor allowing to find a balanced and so lasting growth model which would contribute, in the same time, to the reduction of greenhouse gas emissions.       

 

   

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