Brazil's Flaws Are Clear...

While Eike Batista's collapse from grace may be the poster child for the country, this deep dive into the Latin American economy concludes Brazil’s flaws are clear. Commodity prices have been volatile; global growth has been weak and inconsistent. Brazil can no longer depend on these factors for growth. A closer look reveals that internal conditions are progressively becoming Brazil’s main economic foe. Ironically this is good news as the country is increasingly in a position to take control of its destiny. What is needed is decisive leadership and effective solutions to the long-term problems plaguing the country. Short-term stimulus measures and even supply-side measures such as reduced taxes have clearly not stimulated the economy. Brazil must invest in its own future.

Via Rodrigo Serrano of RCS Investments,

Brazil’s emergence as a significant economic force over the past decade generated noteworthy investor enthusiasm. From 2003 to 2008, an amalgamation of principal factors such as: macroeconomic stability stemming from prior reforms in the country, a recovering U.S. economy from its 2001 recession, historically low global interest rates, appreciating commodity prices, and rising demand from China set the stage for a sustained period of solid economic growth in Brazil.

While most of the aforementioned tailwinds provided a sound incubator for solid economic growth across all BRIC nations during the same period; Russia, India, and China averaged 7.1%, 8.0%, and 11.3% respectably; it was Brazil that more than doubled its rate of growth from 2.0% during 1997-2002 to 4.2% from 2003-2008 according to the World Bank. This improvement was the best among the BRIC nations.

As the 2008 financial crisis approached, many prominent investors and academics, fond of the bullish long-term prospects of the BRIC nations, entertained the decoupling thesis. From the Economist: “Yet recent data suggest decoupling is no myth. Indeed, it may yet save the world economy. Decoupling does not mean that an American recession will have no impact on developing countries… The point is that their GDP-growth rates will slow by much less than in previous American downturns” (Economist: The decoupling debate).

While the American downturn and subsequent financial crisis did precipitate a global recession largely debunking the idea that BRIC nations could step in and save the world economy, investor interest in Brazil only intensified when the event seemed like it would be little more than a slight bump in the road in terms of economic growth. Brazil’s economy registered a scant contraction of 0.3% in 2009, which was then followed the following year by the strongest pace of annual growth in 25 years at 7.5%. Furthermore, Brazil’s Bovespa index rocketed higher from the nadir of its stock market crash in late 2008 by roughly 129% by the end of 2009, the second best performance among BRIC nations over that period after Russia’s MICEX index.

Despite these impressive performance statistics, since peaking in 2010, economic growth has been widely lackluster, souring investor sentiment and bringing into the spotlight the panoply of structural problems facing Latin America’s largest economy. This extensive report covers a brief economic history of Brazil, a focus on the country’s current economic impediments, and steps for positive future development.

Full report below:

RCS Investments: Brazil Special Report