Economical overview
Brazil with its large population, its rich
natural resources and its broad industrial sector could
be one of the world's strongest economies. But economic
neglect, widespread corruption and a lack of educated
manpower have hampered development and created deep gaps
in society. In addition, in recent years there has been
reduced demand and lower prices for Brazilian
agricultural products and minerals, which led Brazil to
end up in the worst recession in a century. Only in 2017
did the curve turn gently upwards again.
For a long time, the economy grew steadily thanks to
high raw material prices in the world and strong demand,
not least in China. The discovery of huge oil reserves
contributed to an average growth of 4.5 percent a year
from 2002 to 2011. In 2011, Brazil was the world's sixth
largest economy, having crossed the UK. Income per
capita was only one-third of the UK's - but growth was
decent, unlike in stagnated Western economies.
Everything seemed to go Brazil's way.
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Then it turned: In 2012, Brazil also experienced a
slowdown. Growth for the year was modest and the country
fell back to seventh in size of the economy. Thereafter,
Brazil continued straight into a deep economic crisis,
with rising unemployment and a sharp fall in currency.
The economy shrank by 3.5 percent in both 2015 and 2016.
The real estate had lost value more than any other major
currency, which made imports increasingly expensive.
Everything now seemed to go wrong and forecasts had to
be constantly adjusted downwards. Growth was the worst
since the beginning of the 20th century. It was not
until 2017 that the trend reversed and growth was again
above zero. However, the recovery was slow, and
government debt continued to grow - even before the 2020
corona crisis again exposed the economy to severe
stress.
At the end of 2016, a constitutional amendment was
passed which means that central government expenditure
must not grow more than the corresponding inflation over
the next 20 years. In practice, this means a 20-year
austerity period in which the budget remains steady
despite the economy and the population growing. The
purpose was to access the large budget deficit and
government debt. The measure was supported by the World
Bank and the IMF, but critics fear that the cuts will
hit hard on all public sector activities and also damage
growth.
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The background to the difficult recession that Brazil
is facing was that world market prices of oil, iron ore
and soy have plummeted, and growth in China, which was
previously a major commodity buyer, has been halted.
Political decision-making was largely paralyzed as the
power-holders had to cope with the worst corruption
scandal in the country's history, a severe environmental
disaster in the iron ore industry and the opposition's
attempt to oust the president through a judicial process
(see Modern History).
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Three major companies, which were the state's largest
sources of income, were hit hard by the crises. This
applies not least to Petrobras, the state oil company
that is at the center of the big corruption scandal.
Odebrecht, the largest construction group in Latin
America, is also involved in the scandal and suspended
from government contracts. Giant mine giant Vale, which
owns Samarco together with British-Australian BHP
Billiton, faces huge damages claims since toxic sludge
leaked following a dust accident in 2015. In January
2019, a new dust catastrophe occurred that further
increased pressure on Vale (see Calendar).
Overall, the outlook was rather bleak for Brazil,
which is one of the world's five largest emerging
economies along with China, Russia, India and South
Africa (the so-called Brics countries).
Until recently, the region around the major cities of
São Paulo and Rio de Janeiro attracted large
investments. Brazil's prosperous regions were buoyed by
construction activity and rapid development in
industries such as IT and telecom. The service sector
grew strongly.
Brazil's economy has long been a mix between
capitalism and state control. Foreign companies were
attracted early to exploit the rich commodity resources
in agriculture and mining, but in the 1960s and 1970s,
the military regime nationalized mines, infrastructure
and industries. The economy grew strongly and the rapid
expansion of the industry was referred to as "the
Brazilian wonder".
However, the "wonder" was largely paid for with
loans. In the 1980s, growth slowed, inflation rose and
foreign debt was soaring. In order to obtain loans from
the IMF, Brazil had to meet certain requirements. Among
other things, the value of the country's currency was
written down in the early 1990s, which favored exports
but made all imports more expensive. The government kept
prices and salaries down. Trade barriers were removed,
the energy market was liberalized and many industries
were privatized. In 1993, the economy began to turn
upwards.
Increased growth
In 1994, a new currency, real, whose value was linked
to the US dollar was introduced. The state budget was
tightened, privatizations accelerated and foreign
investment encouraged. Inflation fell, growth
accelerated and foreign capital flowed. The sale of the
country's energy companies, mining, ports, railways, oil
industry and telecommunications networks provided great
investment opportunities. Domestic consumption expanded
sharply as the purchasing power of average income
earners increased. However, the situation for the
poorest did not improve significantly.
Following the economic crisis in Asia in 1997 and
Russia's financial crisis in 1998, the Brazilian economy
returned. In 1999, the government was forced to let the
value of the currency flow freely. The real estate lost
big in value, and capital flight followed. However, the
economy recovered quickly, with a slightly more than
four percent increase in GDP in 2000. The following
year, Brazil was negatively affected by the debt crisis
in Argentina, where a large part of the country's
exports goes. At the same time, Brazil was hit by an
energy crisis with a downturn in industry as a result.
The South American financial crisis and the Brazilian
left victory in the 2002 election created currency
turmoil and uncertainty in business. But the left
government adhered to a tight budget policy. The
president apologized to his constituents for the fight
against poverty by the attempts to create surpluses in
the state budget and reduce government borrowing.
After a few years of low growth, however, GDP
increased by an average of almost 5 percent in
2004-2007, not least through increased private
consumption following poverty reduction measures such as
Brasil sem miséria (Brazil without misery) and the
family support program Bolsa família (see also Social
conditions).
Through the growth program PAC 2007–2010, the
government invested the equivalent of several billion
SEK in infrastructure, housing, health and education and
the program continued in a second phase, PAC-2,
2011–2014.
Recession
However, the global financial crisis led to recession
in Brazil as well. GDP fell at the end of 2008, but the
economy turned faster in 2009 than in many other places.
However, by the beginning of 2014, the economic crisis
in the outside world had had a negative impact on
Brazil, as the country had poorer sales and less paid
for its agricultural products and minerals. Several big
hands during the year were also expected to hamper the
economy: the carnival that was unusually late, the
summer football World Cup and the fall presidential and
parliamentary elections, all of which were assumed to
contribute to the Brazilians working less. However,
unemployment was at a low 5.5 percent.
Criticism was also directed at welfare programs such
as the Bolsa família, because they cost the state a lot
and hampered the entrepreneurial spirit. Increases in
the minimum wage had been criticized for fueling
inflation, and higher minimum wages, together with
increased pensions, increased the pressure on the state
budget. The budget deficit peaked and reached a peak of
just over 10 percent of GDP in 2015, before the curve
turned down again. The spending ceiling introduced in
2016 (see above) will contribute to the continued
reduction of the deficit, but also to the erosion of all
the social initiatives made in the years before and
which lifted many Brazilians out of poverty.
FACTS - FINANCE
GDP per person
US $ 8,921 (2018)
Total GDP
US $ 1 868 626 M (2018)
GDP growth
1.1 percent (2018)
Agriculture's share of GDP
4.4 percent (2018)
Manufacturing industry's share of GDP
9.7 percent (2018)
The service sector's share of GDP
62.6 percent (2018)
Inflation
3.8 percent (2019)
Government debt's share of GDP
87.9 percent (2018)
External debt
US $ 542 980 M (2017)
Currency
real
Merchandise exports
US $ 238,619 million (2018)
Imports
US $ 185 486 M (2018)
Current account
- US $ 14,970 million (2018)
Commodity trade's share of GDP
23 percent (2018)
Main export goods
transport equipment, iron ore, soybeans, shoes,
coffee, cars
Largest trading partner
China, USA, Argentina, EU countries
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