Brazilian growth may have bottomed, but remains modest

30 Nov 2012 by Jim Fickett.

Today Brazil reported GDP through Q3. The quarter-to-quarter growth rate was up to 0.6% from less than 0.3% for the last three quarters, so perhaps the worst is over. However the year-over-year change is only 0.9%, so growth remains very low.

Most people are comparing current growth to the boom times a few years ago. Perhaps it is more realistic to take a longer-term view. Since 1997 growth has averaged (CAGR) 2.9%. It is likely, then, that growth will bounce back sooner or later, but perhaps not to the much higher levels built on the boom in China.

Even a recovery to a growth rate of 3% or so may take longer than the government likes to admit. Brazil has become much less competitive internationally than it was – the boom times pushed up salaries, Lula greatly increased handouts, and the infrastructure has become more overloaded. The Financial Times writes:

“It’s a very weak economy,” said Alberto Ramos, economist with Goldman Sachs. “It should prompt the government to think structurally about what’s going on with investment, with confidence, to think about the structural impediments to growth.” …

“Look at what Mexico did in terms of containing unit level costs, in terms of containing real wages,” said Goldman Sachs’ Mr Ramos. “Brazil priced themselves out of the global economy by not containing costs – Brazil does not have an exchange rate problem, it is a cost competitiveness problem.”