Brazilian Economic Growth - Essay Example

Brazil has been able to demonstrate political stability since the last presidential elections. These factors combine to show that Brazil is on its way up. Those who maintain that Brazil is performing the most of the BRIC group also argue that despite huge withdrawals by foreign investors, Brazil has suffered less than the other BRIC members and this is a good sign of a healthy economy.

Delfeld (2008) says, “BRIC begins with Brazil. Political stability (Mr. Lula is up there in the stratosphere at a 78% approval rating), strong consumer spending, more flexible exchange rates, a more effective central bank, and higher reserves may help Brazil weather the global financial storm much better than most expect. Brazil has been able to maintain foreign reserves of over $200bn. More than that, the credit crisis may have come at a good time, potentially helping the economy to cool without damping growth too far below the country's potential. Inflation has risen recently to about 6% due to strong consumer spending. A slowing of global growth could help moderate this and also allow the central bank to suspend its tightening policy sometime later this year.”

Brazil has been doing exceptionally well since the election of President Luiz Lula in 2006. With exports booming, the country has witnessed considerable growth in the size of its middle class. Not only that, Brazil has its millionaire’s club expanding too with 130,000 members in 2006 to 190,000 in 2007. That is extraordinary economic growth and it is because of this that Brazil was awarded “investment grade” status by Standard and Poor’s which also attracted considerable investor energy and helped boost their confidence.

A country that now poses a threat to the US economy has seen this exceptional growth in only the last two years. Before this period, the company was far behind the US and even other strong economies like Japan. The GDP comparison in 2005 is shown below:

Gross Domestic Product in 2005 (Trillions USD, Current Prices)

US 12.46, Japan 4.56, Germany 2.79, UK 2.20
France 2.13, China 1.98, India 0.80, Brazil 0.80

At that time the United States was the leader but a lot changed this year when the world’s biggest economy was dealt some serious blows. Brazil however continued to show growth signs till as late as October 2008 but beginning in November, Brazil also faced some growth problems. The recession that has hit the world has also arrived in Brazil. According to a very recent survey by Morgan Stanley, the Brazilian economy is expected to grow by 2 percent in 2009; this is down from the earlier prediction of 3 percent. Apart from this, Morgan Stanley also doesn’t rule out the possibility of zero growth. The Brazilian currency is also consistently falling against the US dollar.

The only reasons why we must not rule out possible economic problems in the future are Brazil’s continued fight against drug lords and its unequal income distribution. Brazil’s poor continue to suffer as its rich section is consistently getting a higher share of economic growth. Lula has certainly been successful in creating a robust economy but what he is overlooking is the fact that there is a vast disparity between the rich and the poor which not only translates into fewer opportunities for the poor but also leads to higher drug-related activities. The Gini coefficient is a useful tool for measuring income distribution in Fulton
(2007) explains:

“Brazil had the most unequal income distribution in the world. With the Gini coefficient--which measures income equality from 0, for perfect distribution, to 1, for completely inequitable distribution--hovering around 0.6 between 1976 and 1996, Brazil's growth has not benefited everyone; other countries with similar growth rates maintain Gini coefficients of approximately 0.34. At present, the richest 20 percent of the population receives 30 times more income than the poorest. This disparity helps create the slums that become home to organized gangs and drug lords. Furthermore, many of the gains made under Cardoso and Lula measure success on a countrywide scale and ignore the fact that while some of the impoverished have increased their incomes, those in Sao Paulo's slums have not.”

Brazil needs to work on this socio-economic problem if it wants to maintain its recent economic successes. It is undoubtedly one of the fastest-growing economies and deserves to be considered a force to reckon with. How Brazil deals with the recent economic slowdown is something that we can only see in due course of time. However, it is true that if it continues to follow the same disciplined economic strategies and policies that it has been since 2008, Brazil will continue to show strong economic growth. Read More