Tuesday, December 9, 2008

Brazil’s Economy Remarkably Strong, But For How Much Longer?

Brazilian flagIn the midst of worldwide reports of falling economies, Brazil’s economy has been remarkably strong. According to Bloomberg, Brazil’s GDP grew 6.8 percent in the third quarter of this year compared to last, up from 6.2 percent growth in the previous quarter year over year. Considering the state of the worldwide economy those numbers are staggering—so staggering that they beat the estimates of all 31 economists polled by Bloomberg. Compared to the constant underperforming of estimates in the U.S., this must be truly exciting for Brazil. On the downside, though, economists are predicting a slowdown for Brazil’s economy, and Morgan Stanley is even predicting a recession for Brazil, according to Bloomberg.

While the talk of recession is probably a bit premature, Brazil will likely see a substantial slowdown in their growth. Economists quoted in the Bloomberg article gave 2009 GDP growth ranges anywhere from 2 to 4 percent. The article also mentioned that certain industries in Brazil were starting to lay off employees, which is never a good sign. However, the layoffs that they mention are nowhere near the level that we are experiencing here in the U.S. We also should remember that 31 of 31 economists underestimated Brazil last time around, so who is to say they won’t do it again?

Brazil is an amazing country with investment potential that has interested me for quite some time. The country has almost every imaginable natural resource and is making great strides towards becoming a world power. I certainly think that we will begin to see a slowdown in their economy as external pressures take their toll on Brazil along with the rest of the world, but I don’t foresee a recession. I think Brazil will continue to grow, albeit at a slower pace than before. Once the global economy begins to turn around I see Brazil taking off once again.

We hear a lot about the BRIC economies (Brazil, Russia, India and China), but of those four Brazil seems to be the least discussed. India and China have their huge populations and incredible growth numbers, and Russia has its huge oil reserves. Brazil always trailed them in growth and in investment hype. To me, though, I think Brazil has as much potential as the others, if not more. India and China have huge populations, but they also are facing some huge problems, such as water shortages. They also are almost entirely dependent on other countries for their energy needs. Russia has abundant water and energy, but their government is repressive. Brazil has tons of fresh water, is energy independent, and though their government is not perfect by any stretch of the imagination, it continues to improve and seems to be headed in the right direction. In addition, the fact that Brazil has not had the same type of investment hype as the other countries is a good thing for investors. Over the long term I think we might see Brazil moving to the head of the BRIC class, and it might happen sooner than we think.

1 comment:

Anonymous said...

Brazil has a strong future with recent oil discoveries, vast natural resources and growing tourism industry. Worth looking at very seriously in 2009.