No more samba in Brazil – My Tuesday column

This post is available in pdf format My Tuesday Column – 9 October 2018

Jair Bolsonaro has come out in the lead in the Brazilian presidential elections with 46%. Looking beyond his very divisive views on certain issues in Brazilian society (status for women, LGBT), on the Paris Agreement and the corruption of previous governments, along with his aim to end Brazil’s endemic violence by allowing Brazilians to take up arms, are there any economic foundations for his likely victory? (see here the Brazilian context of these elections)
This victory has very clear economic explanations. The Brazilian economy has been suffering since 2014 and the collapse in commodities prices. The recession over 2014-2015 and 2016 lasted a very long time, and was followed by a lackluster recovery, which was more of a stabilization than a real rebound. GDP in the second quarter of 2018 still fell 6% short of the 1Q 2014 figure.
This drastic situation can be attributed to two factors. The first is the country’s high dependency on commodities. Brazil enjoyed a very comfortable situation at the start of the current decade when China became its primary trading partner. Opportunities increased and commodities prices soared, so revenues were buoyant and did not encourage investment, creating a phenomenon known as Dutch disease, whereby commodities revenues were such that there was no incentive to invest in alternative businesses. But when Chinese growth began to slow and commodities prices took a nosedive, the Brazilian economy was unable to adapt, so it seized up and plunged into a severe recession.
The other factor is that Brazil devoted hefty financial resources to financing the football World Cup in 2014 and then the Olympic Games in 2016, so in a country with a massive current account deficit, this put a lot of pressure on financing. Funding for public infrastructure replaced investment in production, thereby making the country’s Dutch disease even worse.
The Brazilian population has paid a high price for the country’s brief moment of glory. Continue reading

Brazil at the eve of a terrible change

Elections in Brazil, on October 7, will probably change the characteristics of democracy. The election of Bolsonaro would amplify the populist wave seen with Trump, Orban, Conte, Duterte or Erdogan.

The Brazilian society may then become more violent as Bolsonaro doesn’t respect women and gays, he is a racist and accept violent behaviors from the police to fight crime. Two papers linked below give insights on ” who is Bolsonaro?” and why is he the favorite for this election.

Papers from Project Syndicate and from Foreign Affairs

A supplementary graph on Brazil

To complete what was said in this post, the graph below shows the breakdown  observed since mid-2013. The trend (in red) calculated on the period to peak of 2008 is not different from that which could be calculated over the entire period until 2012. In other words, the impact the 2008/2009 crisis was temporary and transitory on the behavior of the Brazilian economy
There is a real break since mid-2013. The point is just to show that there is certainly a change in regime for the Brazilian economy and the need to be attentive to this new trajectory: that was the subject of my post
brazil-2015-q1-GDP-trend

Brazil, the greatest concern amongst large economies

I gave an interview to capital.fr. The text has been rewritten by the journalist Nicolas Gallant to appear as an article. The link to the original publication in French is here

Brazil is struggling. During the last weekend between 1 and 2 millions of people were down in the street to protest against the president Dilma Rousseff. A weak economy and corruption were the main reasons for these demonstrations. The slower momentum of China, lower commodity prices, a tight fiscal policy and high interest rates are drags to economic growth. According to Philippe Waechter, chief economist at Natixis Asset Management, Brazil is the most worrying countries among the large economies.
Continue reading