Brazilian Economy Is Building Momentum

Earlier this month we saw confirmation that the Brazilian economy grew by just 0.9% during 2012 which was well below initial expectations of 4.5% in early 2012. In many ways this was something of a hangover from growth of the previous year and the fact that the ongoing European debt debacle is still continuing. However, there do seem to be signs that the economy is building up yet more momentum although many experts are reluctant to issue forecasts for 2013 at such an early stage.

Economic momentum in 2012

At the start of 2012 there were high expectations for the Brazilian economy with growth of around 4.5% predicted. However, very quickly it became clear that this figure was unachievable due to a mixture of factors which came to the fore during the first half of 2012.

It is also worth noting that the final three months of 2012 saw economic growth of 0.6% which in many ways saved the day and boosted the annual figure to the published level of 0.9%. There is a feeling that momentum is again starting to build within the Brazilian economy, that government plans to cut taxes and lower interest rates will begin to kick in and perhaps the situation is not as dire as many had assumed?

Putting Brazilian economic performance in context

Brazil, along with Russia, India and China, makes up the so-called BRIC Group of emerging economies which have become powerful as one unit over the last few years. It is worth noting that the likes of Russia, India and China have all experienced a reduction in GDP growth over the last 12 months. Such is the influence of this relatively small group of countries that overall worldwide economic growth could be impacted by as much as 0.5% over the next five years due to the slowdown in these economies.

However, we must note that it is very difficult to look forward with any real confidence under the current economic clouds. The European debacle is very much alive, the American government is still to confirm details of its budget and while Latin America has performed admirably during this very difficult time, it could not continue forever at historic growth rates.

Debt burden in Brazil

One factor which has caught the attention of some economists is the fact that the average Brazilian householder is now spending around 20% of their income servicing existing debts. This figure is far in excess of that associated with US households prior to the 2008 economic collapse but it is a very different situation and should be looked at in a very different context.

The recent boom in Brazilian consumer spending was there for all to see and was fuelled by an improving employment market and economic growth. Many Brazilians took out credit cards, loans, etc in the knowledge that they would be able to finance these debts going forward due to improved employment prospects and improved income.

So while the 20% figure quoted above may seem excessive, the vast majority of Brazilians will be able to pay down their debts far quicker than their US counterparts. Indeed there have been reports of some Brazilian employees experiencing wage increases of 100% over the last 2 or 3 years which has obviously taken them to a different level with regards to income.