Long-term Optimism for Brazil Economy

By Ben Tavener, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – According to economists, political experts and business figures, the current blip in the Brazil’s financial progress will be short-lived, and booming growth will be back in the next few years. New predictions show the country overtaking European powerhouse Germany to be the world’s fifth largest economy by 2022.

Those interviewed by O Globo newspaper predict the economy will swell to double its current size in the next twenty years, expanding its GDP from its current US$2.4 trillion to about US$3.5 trillion by 2022, and then to around US$5 trillion by 2030.

Some believe Brazil’s fortunes are even brighter than that: “I envisage Brazil in amongst the three biggest world economies, with major social advances and sustainable growth,” was the view of Brazil’s richest man, empresario Eike Batista.

Coupled with increased foreign investment and government spending, this long-term prediction is based on the supposition that a staggering seventy percent of Brazil’s swelling population will be of working age.

In addition to that a sizable proportion of that population will be middle class with a good level of disposable income, and also that new reserves of natural resources will be available for exploitation, particularly in the oil and gas industries.

Politicians are also optimistic, but say the biggest challenge will be maintaining sustainable development. José Augusto Coelho Fernandes, Director of Politics and Strategy at the Confederação Nacional da Indústria (National Confederation of Industry, CNI), believes that the country’s future lies in the hands of Brazilians:

“Of course global growth creates the best environment, but part of the solution is independent of that: we need more education, innovation, tax reforms, modernized labor rules, and more investment in infrastructure, regardless of the worsening [economic] crisis in Europe, the recovery in the U.S., and growth in China.”

Just two years ago Brazil’s GDP grew by an impressive 7.5 percent, which had the business world frenetic about the country’s future. But 2011 saw disappointing growth of just 2.7 percent and the economy has failed to recover since.

Despite recent comments by Brazilian President Dilma Rousseff about fresh boosts to the economy – something that has been heard on a number of occasions in recent times – some have slashed their forecasts for 2012 growth to just 1.5 percent after forecasts for the sluggish industry sector predicted negative growth of just 0.04 percent.

Even the government’s forecast for the year was recently cut dramatically from 4.5 percent to just three percent. Round after round of poor results from many sectors, leading to a 45 percent fall in national exports in the first six months of the year, has meant months of disappointing news dogging the Brazilian economy.

The government has been warned that Brazil needs to become more competitive globally, less dependent on China, and that its favored credit-led, consumption-driven strategy is no longer an option. Brazilians’ household debt continues to mount up, and that the eradication of the so-called “Brazil cost”, the result of everything that complicates companies from doing business in Brazil, must be urgently addressed.