Top
Commentary

Brazil has been decelerating since the end of 2009

9 Mar 2012 by Jim Fickett.

The impression one gets from headlines these days is of a broad deceleration in growth in emerging markets. In the case of Brazil, at least, this impression is supported by the GDP data.

On Tuesday Brazil reported GDP data through Q4 of last year. The most recent quarter's growth was disappointing. Reuters reports:

Activity expanded 0.3 percent following a revised 0.1 percent contraction in the previous quarter, government statistics agency IBGE said.

It is more useful to look at a longer-term view. IBGE provides historical data:

What I find striking in these data is not the one or two quarters of slow growth, but the clear and continuous deceleration of growth from the end of 2009 to the present. The idea is being tossed around that Brazil will return to a more normal growth rate of perhaps 3% per year:

the data reinforced the biggest concern of [President Dilma] Rousseff and many business leaders - that Brazil may be downshifting into a new era of mediocre 3 percent annual growth as a tight labor market, an overvalued exchange rate and other costs prevent the economy from expanding any faster.

“Things just aren't taking off,” said Senator Valdir Raupp, the head of the PMDB party, which is part of Rousseff's coalition. “Investments aren't happening. There are just a few sectors where things are going well.”

This quote makes it sound as if 3% growth is quite abnormal but, in fact, the compound annual growth rate over the period shown in the graph is almost exactly 3%. So returning to a 3% growth rate might be quite natural.

What is clear from all this is that the assumption underlying much emerging market investment, that Brazil, China and other emerging markets will grow at high rates for decades, is, at best, questionable.