An Analysis of Brazils Economy for the Period 2004-2013 - Essay Example

Running Head: An Analysis of Brazil’s Economy for the Period 2004 Department Introduction Brazil the world’s 7th biggest economy in terms nominal GDP; its economy is also ranked 7th on the basis of purchasing power purity. The economy is characteristically a moderate free market and is inward oriented. Brazil is the economic power in Latin America and has emerged among the fastest growing on the globe with a 5% yearly average rate of growth in GDP. As such Brazil has the prospects of entering the world’s top five biggest economies in the future. Forbes magazine ranked the economy at number five in terms of the number of billionaires across the world beating other economic powers like the UK, and Japan. as a nation, brazil is member to numerous economic blocs which include WTO, Cairns group, Mercosur, G20, Unasul and G8+5 (Larry, 2011). The Brazilian economy is composed of a highly developed Agriculture sector, manufacturing, service and mining sectors. Beginning the year 2003 the country tremendously stabilized the macro-economic environment hence accumulated foreign exchange reserves and significantly reduced the debt profile. This was achieved through a shift of debt burdens toward real denominated & internally controlled instruments. Growth in GDP over the past decade has been steady hitting a high of 7.5% in 2010. a rise in inflation forced a shift in monetary policy towards cooling the economy; these measures coupled with a slowdown in the world’s economy saw the growth rate decline to 2.7% & 1.3% in the years 2011 and 2012 respectively. Unemployment rates have been reduced significantly as well as the inequalities in income levels (Saores and Fabio, 2005). Production Output Performance Analysis. The country posted a GDP per individual growth rate of 2.5% per year in the period spanning 2004-2013 in spite of global recession of 2008/2009 that saw it experience a recession in the year 2009. As at 2013 the country had a GDP of $2245.67 billion which accounts for 3.62% of the world’s overall economy. According to World Bank reports, Brazil’s GDP grow steadily over the period and reached the historical highest in the year 2011 at $2476.69. Growth decelerated in 2012 and 2013 picked up again in 2014 and continued on the acceleration trend. The country’s GDP per capita equals 46% of the entire earth’s average; over the period 2004-2013 it has been on the upward trend and reached the historical high of $5823.04 in the year 2013. A decline was witnessed in 2010 but the same was reversed the following year and the growth momentum maintained on the upward trend. The turn of events in economic performance is attributable to macroeconomic policy changes. The decade was also characterized by trends towards the reduction or total elimination of income inequalities and poverty levels. The positive changes came around following income growth, increased employment and government’s expansion of social spending as well as other programs aimed at reducing poverty. Another economic performance trend was the stable increment of the minimum wage as well as employment in the informal sectors which increased the workers’ power of bargaining. poverty levels have gone down by more than 55% since the inauguration of the new regime in 2003; poverty levels stood at 15.9% in the year 2012 down from 35.8% in 2004. Extreme poverty went down to 5.3% from 15.2% representing a decline of 65% over the same period. 31.5 million of the population were lifted from the poverty bracket, 16 million of which were saved from extreme poverty. in terms of inequalities in distribution of income, in the period 2004-2013 the Gini coefficient went downwards from 0.59 at the start to 0.53 at the period end (Weisbrot, Johnston and Lefebvre, 2014). In order to achieve good economic performance the government has tremendously improve the macroeconomic policies. The Central Bank for instance has allowed appreciation of exchange rates thus lowering the prices of imports as well as exports. President Lula’s administration also reactivated the nation’s industrial policy so as to encourage industrial growth in key industries. Disbursements by BNDES towards the country’s industrial policy increased from 2.2% of national GDP in the year 2005 to 4% at 2013. 80% of the disbursements by BNDES went to the industrial policy over the same period. The government also increased its social expenditures; the Bolsa Familia program for instance was introduced in 2003 and over the period 2004-2013 funding of the program was moved from 0.2% of national GDP to 0.5%. This initiative particularly targets helping the poor of the poor. Labor Market Analysis. Apart from macroeconomic and social policy tools the labor market is also very important in reducing poverty levels as well as income inequalities. Brazil has transformed the labor market over the period tremendously. The 1990s saw an increase in the levels of informality and unemployment; a reversal of the trend was seen in the year2003 for unemployment and 2005 for informality. in the year 2003 unemployment stood at 13% before commencing a decline which was maintained for the next ten years. There was a brief reversal of the trend in 2006 and 2008 but continued afterwards. Rates of informality declined sharply to start at 13.3% in 2014 from the high of 22.5% of 2003. These meant informal sector workers have increased access to social benefits such as pension, paid leave, controlled hours of working and credit. a very crucial policy of the labor market has been the commitment at improving the minimum wage which now stands at R$ 716.8. Over the same period workers have also gained in terms of increasing insurance coverage for unemployment; this has gone up by over 99%. Unemployment rates continue on the downward trend even with a slowdown in economic growth. In the period of the world economic recession unemployment reached a high of 8.4% then it declined consistently afterwards, slightly increased again in the transition from 2012-2013 before reverting to the downward trend. The consistent reduction in unemployment even with slowed economic growth is possibly as a result of the economy’s strong growth in the service sector or a low participation of the labor force. the government’s measures at achieving full employment include increased expenditure on education, activation of the industrial policy and improvement of the macroeconomic policies (Barbosa and Fernando, 2012). Price Level Analysis The Central Bank has consistently implemented monetary tools that target at controlling the rates o inflation. The country has seen huge fluctuations in its GDP growth for the period 2004-2013 yet inflation has been contained within the target levels. The rate of inflation was 5.7% in 2005, declined to 3.1% in 2006 before increasing to 4.5% and 5.9 in 2007 and 2008. The Inflation went down again o 4.3% in 2009 and up to 5.9%& 6.5% in 2010-2011 then went back to the decline trend. Inflation was attributable to the consistent increase in the minimum wage levels, sustained increase in domestic economic growth as well as the liquidity difficulties that followed the global economic recession of 2008/2009. The government of Brazil through the Central Bank uses Selic rate as the primary monetary policy tool. Responding to domestic growth and effects of the recession and to control inflation the Central Bank lowered Selic rate. In 2008 interest rates were withheld at 13.75% even with declining economic activity. In response to the 4.2% GDP shrink in 2008, Selic was further lowered to 8.75% in January 2009 from 13.75% and the new rate was held for seven months. The rate was adjusted upwards to 12.50% amid the economic slowdown in 2011. With recovery in GDP growth the Selic was adjusted upwards in 2013. it is therefore obvious that at times economic growth has been sacrificed in efforts at lowering inflation even when the source of inflation is known to be external e.g. the prices of commodities in the year 2011 (Malinowski, 2014). Concusion. In conclusion therefore, Brazil as an emerging world economic power has implemented a number of transformations to improve economic performance. The measures of transformation implemented include increased spending by the government on social security programs, significant consistent increments in the national minimum wage and changes aimed at stabilizing the macroeconomic environment during the period 2004-2013. Another very important measure of transformation has been in the labor sector which seen increased insurance coverage for unemployment as well as improvement bargaining power for the labor force. The transformations have the country record significant progress in terms of alleviating poverty and reducing inequalities. The country has also been able to record consistent economic growth and tremendously reduce unemployment rates. The results of the economy’s macroeconomic, monetary and labor changes appear to be permanent. If these policies are strengthened, the progress in terms of industrial policy activation sustained and increased public investment to spur productivity Brazil’s economy is likely to continue with the growth trend. Also if the government’s expenditure on social programs such Bolsa Familia continues to be increased the levels of poverty as we as income distribution inequalities will possibly go further downwards. Reference. 1. Barbosa Filho, Fernando de Holanda. (2012). Income Inequality and Labor Market Dynamics in Brazil. OECD. Available at http://www.oecd.org/eco/labour/50573016.pdf 2. Elliott, Larry (2011). GDP projections from PwC: how China, India and Brazil will overtake the West by 2050. London: The Guardian. 3. Malinowski, Matthew. (2014). Brazil Inflation Really at 8% Without Rouseff Fiddling. Bloomberg Businessweek. Retrieved at http://www.bloomberg.com/news/2014-07-08/brazil-inflation-really-at-8-without-rousseff-fiddling-economy.html . 4. Mark Weisbrot., Jake Johnston and Stephen Lefebvre. (2014). The Brazilian Economy in Transition: Macroeconomic Policy, Labor and Inequality. Center for Economic and Policy Research. Available at http://www.cepr.net/documents/brazil-2014-09.pdf 5. Veras Soares, Fábio. 2005. The Impact of Trade Liberalization on the Informal Sector in Brazil. International Poverty Center. Brasilia, DF: UNDP/IPEA. Read More