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Brazil: A global player facing new challenges

Destatis, 3 June 2014

It is difficult to find a country more fascinated by football than Brazil, the host of the FIFA World Cup 2014 due to start on the 12th June. But over the last 12 months the country, which was hoping to present itself as the perfect World Cup location, has instead hit the headlines with persistent protests and strikes. One of the key issues is the amount of money which has been spent on organising the prestigious event. But the protests are also fuelled by other topics. After years of stable economic growth, there is a fear that the economic situation is facing a downturn. Before the opening game starts this article looks at the current economic and social situation of the South American global player Brazil.

Brazil: Economic growth more moderate than in previous years

Comparing Brazil: Economic performance 2013Enlarge picture

With a gross domestic product (GDP) of about 2243 billion US Dollar in 2013, Brazil is the world’s seventh largest economy according to data published by the International Monetary Fund (IMF). In relation to its population size of approximately 200 million people its ranking is somewhat less impressive: The GDP per capita amounted to about 11300 US Dollar in 2013, resulting in rank 62 of all 193 UN Member States. In per capita terms, both Argentina (11800 USD) and Chile (15800) achieved a higher economic output.

Brazil is one of the so-called BRICS countries. This group of states – incorporating the Russian Federation, India, China and South Africa – are considered to be key emerging economies with high economic growth. Together they represent about 40% of the world’s population and more than 20% of global economic output.

According to IMF figures, Brazil’s economic growth amounted to between 3 % and 6 % in the years 2004 to 2008, but stayed significantly below the growth rates registered by China or the Russian Federation. In recent years Brazil’s growth rate has become more moderate and has not exceeded 3% since 2008.

Weak manufacturing industry

Gross value added in % of GDPEnlarge picture

Despite stable economic growth, a number of challenges remain: For an emerging economy the share of gross value added (GVA) generated by the industrial sector (including construction) is remarkably low. According to the World Bank 26.3% of Brazil’s GVA was generated by industry in 2012 – a large drop on 1985 when industry accounted for 45.3% of the total output. In Germany industry and construction represents almost 31% of GVA. Most emerging economies such as China (45.3%) or Chile (35.5%) have a significantly stronger industrial sector.

A further challenge is the low level of investment, which amounted to 18% of GDP in Brazil – a level more typical of established industrialised countries but considerably lower than other BRICS countries, such as India (35%) or China (48%).

International trade: Highly reliant upon commodity exports

Brazil's main trade partnersEnlarge picture

Brazil’s comparatively weak industrial sector and the relative abundance of natural resources mean that the country’s exports are highly dependent upon commodity trade. In 2013, the leading export goods included iron ore, oilseeds (soy), mineral fuels and oils, and sugar. According to data published by UN Comtrade these four product categories accounted for a third of all exports. The EU was the main destination for Brazilian exports, with about a fifth of all goods exported heading to an EU Member State. But the share of exports destined for the EU and the United States is declining as demand for Brazilian products increases in China. In 2003, 6 % of all exports were transported to the world’s most populous country. By 2013, this share had tripled, reaching 19%.

On the other hand, the main goods imported to Brazil were manufactured goods such as vehicles, vehicle parts, machinery and mechanical appliances, organical chemicals and fuel.

Public finance and monetary stability

One key factor assisting the period of economic growth Brazil has seen is the consolidation of public debt and the clampdown on inflation. In the early 1990s Brazil’s inflation rate hit record levels of more than 2000 %. Although inflation still exceeds central bank targets, it has remained below 7% since 2004. Hyperinflation has become a thing of the past. With a general government deficit of 3.3% in terms of GDP and gross debt amounting to 66.3% of GDP, Brazil’s public finances were more stable in 2013 than many Eurozone countries.

Poverty and income inequality remain high

Income distributation in BRICS states 2009Enlarge picture

Brazil reported an unemployment rate of 7% and a youth unemployment rate of 16% in 2012. These figures published by the International Labour Organization show that the Brazilian labour market is in fairly good shape – and yet poverty remains a large problem. 11% of the population (or 21 million people) had an income of less than 2 international dollar per day in 2009. This rate has decreased in recent years, but is nevertheless somewhat higher than in Argentina or Chile.

International comparisons also show that income inequality is high in Brazil. Using the Gini coefficient, which varies between 0 (full equality) and 1 (maximum inequality), the World Bank recorded an index value of 0.55 for Brazil in 2009. This indicates a significantly higher level of inequality than China (0.42), the Russian Federation (0.40) or India (2010: 0.34). According to OECD data Germany’s Gini index amounted to 0.29 in 2010.

More public investment in health and education

Whilst poverty and income inequality contributed to the protests Brazil has seen in recent years, they were by no means the only issues causing dissatisfaction. Corruption, the increase in prices of everyday goods and above all a feeling that the government should be investing more in health and education rather than building stadiums for the World Cup and the 2016 Olympic games added to the tension.

OECD figures show that expenditure on health in Brazil amounted to 1043 international dollar in 2011, which is well below the OECD average. Also a particularly low percentage of this spending came from the public sector (46% compared to the OECD average of 72%).

Whilst spending on education has increased in recent years and reached the OECD average of 5.8% in terms of GDP in 2010, funding remains a key issue in a country where 1 in 4 people are under the age of 15. For instance, expenditure per pupil at primary school level only amounts to 35% of the OECD average, even when taking differences in purchasing power into account.

Author: Daniel O'Donnell - Federal Statistical Office
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