The government of Brazil is expecting the growth in the global economy next year to spur growth in Brazil in 2015. While I believe it is possible for global economic growth to spur growth in other countries, the back drop behind global growth this time is different. The growth in 2015 is still based on a recovery from the Great Recession. This means that US interest rates are still going to strengthen as more people bring capital back to the US with the expectation that interest rates are going to raise. As we saw in December and January, countries like Brazil faced massive capital outflows and weakening currency rates, causing many of these countries to raise interest rates. The central bank of Brazil has said that the growth in the world economy will help spur Brazil’s growth but there doesn’t seem to be any evidence to this statement. The central bank says that the recovery and growth in the world economy has already started this year but analysts keep lowering their expectations of Brazil’s growth. The bank of Brazil expects a growth of around 3% while economists are less optimistic and expect around 1.65% growth. If the recovery is greater in 2015 then expected, Brazil could see a bump due to raising exports from Brazil if their currency keeps depreciating. This is a big if though and I don’t think it will lead to the primary surplus that Brazil is hoping for.
As other posts in this blog have talked about, one key event that could help Brazil’s GDP growth is the World Cup this year. There has become such backlash against Brazil’s development over the past 3 years that Brazil’s finance minister had to speak about it recently. Many proponents of Brazil don’t believe that Brazil will meet the required infrastructure necessary for the World Cup or that the infrastructure will be hastily constructed and not up to par. The finance minister points to outside forces as the key detractors of the World Cup preparations but FIFA has even issued warnings to Brazil about its preparations. The World Cup usually leads to a large increase in outside investment and while Brazil’s currency has strengthened relative to the dollar, Standard and Poor just reduced Brazil’s bond rating to one step above junk. This is going to make it even more difficult as many investors are still pessimistic about investing in Brazil. One benefit that Brazil might have is inflation will most likely go down next year as food prices go down. The recent drought this year caused food prices to sky rocket and support the high inflation rate of 6%. A lack of a drought next year would help bring the inflation rate down. While I do agree with Brazil that a large portion of their problems have been supported by the global slowdown, Brazil lacks strong infrastructure and political corruption is still a huge problem in Brazil. Brazil needs a strong, fundamental base which it lacks.