Brazil Economy Facts

by ebizdir · Published January 30, 2023 · Updated February 22, 2023

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.

Countryaah.com: Major imports by Brazil, covering a full list of top products imported by the country and trade value for each product category.

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.

Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including BRA which represents the country of Brazil. Check findjobdescriptions to learn more about Brazil.

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).

Declining cookies

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.