Political Risk Latin America Blog @PolRiskLatam

Brazil’s Economy: Too hot

Posted in News and Articles, Political Risk by politicalrisklatam on June 2, 2011

by The Economist, June 2nd, 2011.

Latin America’s biggest economy is more fragile than it appears

Brazil has a lot to be proud of. A decade of faster growth and progressive social policies has brought a prosperity that is ever more widely shared. The unemployment rate for April, at 6.4%, is the lowest on record. Credit is booming, particularly to the swelling numbers who have moved out of poverty and into the middle class. Income inequality, though still high, has fallen sharply. For most Brazilians life has never been so good.

That success is partly thanks to good luck, in the form of booming commodity prices. But it is also the result of good policies. A country once known for its macroeconomic incompetence has maintained an enviable stability, deftly navigating the 2008 financial crisis as well as the more recent influx of foreign capital. Not surprisingly, perhaps, many of Brazil’s economic officials now have an air of smugness about them, as they argue that the rest of the world has more to learn from Brazil than vice versa.

The timing of such complacency could not be worse. The economy is overheating. The government is stalling on a deeper reform agenda that is essential to boost Brazil’s long-term growth and fiscal stability. President Dilma Rousseff’s growing political problems do not help: her chief of staff, Antonio Palocci, is under fire over fat consulting fees (see article). All this adds up to a warning: Brazil’s economy is heading for trouble. (continue reading… )

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