Overview: Brazil has been one of the biggest economies in Latin America, however since 2014 it has been

struggling with mounting debt, high interest rates, rising commodity prices, falling investments, and high
unemployment. Another major reason that has led to its decline is the rampant corruption. Corruption has not
only led to a recession, but also to ouster of the then President Rousseff. Trying hard to recover from the worst
recession with the change in political scenario, the government is bringing down the interest rates, and trying to
maximize the tax revenues, but the effectiveness of these measures has been under economists’ lens for long.
GDP:

GDP in USD (Bn)

3,000.00

2,000.00

1,000.00

-
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
2014
Growth in GDP in Brazil was steady at 4.5% between 2006 and 2010 to 2.1% between 2011 and 2014, post which
it started falling and has not been able to recoup since. The recession led to the contraction of the Brazilian
economy by 3.8% in 2015. 1

In 2009, Brazil’s economy shrank about 0.3% because exports fell and credit weakened, but it came back strongly
in 2009 when it grew by 7.5%.2 For years, investors felt that Brazil was the most lucrative investment location
among BRICS nations, but this changed in the years after 2011. Brazil showed the signs of a weakening economy
indicated by high unemployment and mounting debt, however these signs were initially ignored. The fall in
commodity prices and the inability to make necessary policy adjustments at the right time ultimately led to the
deep recession that Brazil has been facing.

Composition of GDP: Majority of Brazil’s GDP is driven by its services sector, followed by secondary sector
and agriculture sector. The contribution of service sector to the GDP (72%) was almost thrice as high as the
contribution of the secondary sector (22.7%) in 20163, and the remaining came from agriculture. This has been
the trend since 1990s. Major industries in the services sector have been telecommunications, commerce and
banking. It’s noteworthy that Brazil has the second biggest industrial sector in the Americas that contributes about
15% to its GDP. This industrial sector includes automobiles, computers, aircrafts, steel, and petrochemicals.4

GDP at PPP: GDP at PPP in Brazil was $3.216 trillion in 20165. GDP at PPP is an indicator of the value of goods
produced and services consumed in a country at the rates prevailing in US. Brazil stood 7th strongest in the list of
countries ranked as per GDP at PPP, with other BRICS nations with the exception of South Africa being above it
in the list.

1
http://www.worldbank.org/en/country/brazil/overview
2
https://www.focus-economics.com/country-indicator/brazil/gdp
3
https://www.cia.gov/library/Publications/the-world-factbook/geos/br.html
4
https://www.focus-economics.com/country-indicator/brazil/gdp
5
http://databank.worldbank.org/data/download/GDP_PPP.pdf
GDP: Expenditure Method: Y=C+I+G+NX
Brazil has been transforming as a
nation and that is visible from the high
Imports -14% contribution of household
Exports 13% consumption to GDP in the above
Investment in Inventories -1% chart. Historically, this contribution
Investment in Fixed Capital 20% wasn’t that high, but we see that
Government Consumption 20% changing because Brazil is moving
Household Consumption 62% away from being an economy of only
-20% -10% 0% 10% 20% 30% 40% 50% 60% 70% elite rich to an economy that is better
6 developed and supports equality.
Foreign investments have been falling due to rising uncertainty in the
political and economic scenario, and public investment is also limited due to rising fiscal deficit. The exports have
been falling due to rising commodity prices, which is leading to a negative net exports.
Recently, there have been signs of recovery in Brazil, which estimates that the GDP will start rising since
consumer spending is rising and investments are rising. Further, it’s positive also because there was a strong
harvest.

GDP per capita:

GDP per capita has been rising steadily over the years
indicating that the standard of living is rising in Brazil.
This indicates a shift that Brazil has been trying to
make. Historically, Brazil has been an economy of
elite rich, but it has been trying moving towards
achieving a more equitable distribution of wealth.
However, recession has adversely affected progress in
this direction as the unemployment rate has been very
high since 2009.
7

Inflation and price indices:

Direct price indices: The 2 direct price indices (CPI, PPI) are calculated based on a fixed basket of market goods
against a base year, as a percentage of the price of the basket of goods in the base year on the current date.

CPI inflation:
GDP deflator inflation:

6
https://www.cia.gov/library/Publications/the-world-factbook/geos/br.html
7
http://www.worldbank.org/
Causes for inflation increase (2011-2016):
- In 2011, following the election of Dilma Rousseff as the president, certain policies were enacted which
substantially increased public spending8 which lead to increased lending by state-run banks.
- Within 2012, as indicated in the above graphs, the GDP started falling due to strong price control measures
by government which discouraged investors. Given the low interest rates, however, inflation started
increasing.
- By end of 2015, this reached staggering numbers (10.71 % inflation) coupled with negative GDP growth.
The target for inflation in 2015 was 4.5%, with a tolerance band between 2.5% and 6.5%. This lead to a
situation of stagflation on the Brazil economy. This was also coupled with high rates of unemployment.
Controlling inflation, and restoring economy:
- In 2015, in order to curb the growth of inflation, the central bank maintained its inflation rate as high as
14.25%. This limited consumption, and reduced the inflation rates.9
- Post 2016, after election of a new president, the government decided to reduce interest rates substantially10
since the inflation had come close to the target range. The GDP is also back to a growth trajectory
currently.
- Currently, the inflation is at 3.6%, within the target range for inflation.
Savings and Investments
Brazil total investment, % GDP Brazil Gross national savings, % GDP

Beyond 2014, when Brazil entered its worst phase of the recession and GDP growth became negative, the total
investment and savings as a % of the GDP started dropping substantially. This was also accompanied with high
inflation. However, due to economic policy changes post 2016, and reduction in the rate of interest, the decline
in savings and investment stopped and future projections look positive for investments and savings. This bodes
well for prospective investors in BOVESPA (Brazilian stock exchange).
Brazil interest rate: Brazil inflation rate, CPI based:

- Given the high inflation up until 2016, the Brazilian government maintained the central bank interest rate
high, going up to a peak of 14.25%.
- Post 2016, the economy is poised to grow again, and inflation rate has come down. This has prompted the
bank to reduce interest rates again11 to closer to 10%. This will attract investors again to the Brazilian
market, and bank lending to private companies will increase again.

8
https://www.thebalance.com/brazil-s-economy-3306343
9
https://www.ft.com/content/5f261b04-6721-11e5-a155-02b6f8af6a62?mhq5j=e1
10
https://www.ft.com/content/fd38117c-1fcf-11e7-a454-ab04428977f9?mhq5j=e1
11
https://www.ft.com/content/fd38117c-1fcf-11e7-a454-ab04428977f9?mhq5j=e1
 - The above factors point towards improving investment scenarios. These are indicators of the end of
recession within the economy, and small strides towards growth.
Indicator of lack of confidence in the economic growth:
Brazil real interest rate Brazil consumer spending (projected beyond 2016)

However, there is indication of low confidence in the Brazil economy still. The Brazil real interest rate has risen
substantially in 2016, as a result of which consumers tend to save more than spend. The above graph on savings
in the Brazil economy indicate the increase in saving mentality too.
As a result, consumer spending though growing, is slowing down the pace of growth12 which indicates a lack of
trust in the economy still, as it is just out of recession. Sustained increase in GDP and maintaining of moderate
inflation will help increase confidence in the investors and consumer spending shall also increase along with this.

Unemployment:

The unemployment rate in Brazil has been decreasing over

Unemployment Rate the last decade. Apart from other reasons some of the decline
15 could be attributed to the fact that the unemployment rate in
10 Brazil, between 1983 and 2002, the working age of
population (PIA) was considered as those over the age of
5
fifteen. Currently, the age limit has been increased to
0
eighteen. Further earlier unemployed were those who had
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017

work for less than 15 hours per week, currently this threshold
has been set to one hour per week. In the last two years the
Unemployment Rate
unemployment rate has increased to close to 12%. This is due
to the economic recession the country faced in 2015-2016.

The country since the 1960’s has witnessed a decline in the

fertility rate which has contributed to a large aging population
Sectoral Split % and slow population growth rate. The labor force comprises
60 101.9 million people with a distribution percentage as 10%
in agriculture, 39.8% in industry and 50.2% in services.
40

20

0
Agriculture Industry Services

12
https://www.forbes.com/sites/kenrapoza/2015/03/29/brazil-consumer-spending-at-lowest-growth-pace-in-12-years/#7b4f3ffaf019