The following few
sections seek to provide a synopsis of the present economic picture
given the very mixed highs and lows of celebratory world showcase
events set within what rapidly became a deflationary and now
seemingly static economic climate, as EM nations experienced their
own global slowdown from 2013 through to late 2016.
This portion starts
with a recap of the general background, with provision of key data
sets from the CIA Fact Book for 2016 and recent YoY data, thereafter followed by a synopsis of the OECD's latest report.
Background to the
Modern Day -
Unsurprisingly, given
the socio-economic previous realities of a markedly delineated
society and a bottom-up groundswell passion for fairness, justice and
improvement, like much of Latin America, Brazil has been historically
beset by very disruptive and volatile 'left-right' reactionary
politics, with broad swings in policy consequences regards the
influence of the outside world.
Hence the ideologies of
a very left-leaning and idealised 'social utopia' versus those of
right-leaning 'engrained stability' have historically clashed.
But critically, though
undoubtedly with major disruptions, over the last 6 decades true
social progress has been made; whereby necessary pragmatism has
overcome past engrained combative ideologies; so leading to far
greater social cohesion and decline in poverty rates.
After the massively
positive impact f the Vargas-Kubitschek eras, the next prominent
watershed period came in the late 1980s, with efforts to overcome the
suffering of the 'Lost Decade', finally taking affect as of 1994
onwards. Herein it was re-recognised that devout leftist or rightist
stances would not suffice in a rapidly globalising age, and so a new
'middle way' path was sought and seen to deliver.
The ability to convince
the public of the force for good that globalisation and capital
markets could bring to a broadened mixed-market economy was thanks to
the very personal understanding – from his auto-industry experience
- of the previously highly leftist President 'Lula'.The results of
his own learning was in effect imparted to his people given their
confidence in him as “one of our own”.
That internationalist
yet fiscally conservative 'middle-way' would serve as the basis for
socio-economic improvement for the many, across the previously
entrenched race divide, and with it the ability to better mix in new
workplaces, social situations and en mass, so reducing the previously
engrained 'under the surface' tensions between ethnically distinct
social groups.
That recognised, even
with the social lubrication of improved general wealth - as with any
mixed society - the tribal mentality of “birds of a feather
sticking together” still typically in extremis over-rides improved
social dynamics. (The aforementioned idioms of: self-perpetuation for
the upper echelons, self-education for the middle and
self-preservation for those still struggling.
[NB herein the slow but
seen rise of social and political influence from distinct previously
marginalised groups such as Afro-Latinos and the Aboriginal peoples
have partly generated a new idea of proud racial distinction – as
with the rise of self-proclaimed 'Negritude' – so discouraging
inter-breeding outside of racial boundaries so as to maintain what is
regarded as ethnic purity].
Thus old class-bound
and new sociological idioms about the true limits of the idealised
the “melting pot society” may reshape Brazil's peoples, with both
the fused and distinct cultural identities no doubt seeing emergent
trends in tomorrow's consumer trends
The major issue and
realisation is that since 1994 major swathes of previously virtually
destitute people across Latino, Afro-Latino and Aboriginal spheres
have through opportunity and application been able to rise into and
populate much of the new lower middle class; with even with the
present economic contraction, today's poverty rate being about 21%,
as compared to 40% in the early 1990s.
This thanks to the
created foreign policies which by default and design had the door of
international relations (and so FDI) always open, though at differing
degrees. At times fully open, or left partially ajar, but never
wholly closed. Even when the rhetoric of 'self-protectionism' was
voiced to the populace and the very real introduction of import
tariffs, it was done reliant on foreign input to nurture modern
developing industries - such as with energy, automotive, IT,
healthcare and pharmaceuticals and now the simultaneous ambitions
regards exploration of both outer-space (aero-space) and inner-space
(nano-technology).
Depending upon the era
and the ideals of elected and non-elected governments, Brazil's
relationship with the rest of the world – America, Germany, Italy,
Russia and latterly China – meant that such external input to boost
domestic self-development altered as circumstances changed and as the
government seat of Brasilia sought to ply one foreign powerhouse
country against another for access to Brazil.
This EM typical 'half
open, half closed' policy stance obviously to leverage any threat of
foreign 'commercial imperialism' for its own ends, so as to advance
indigenous technical capabilities.
This has been the
central pillar of Brazil's industrial and commercial strategy
throughout time, so as to subsequently introduce – with reduced
early-phase superficiality – the idea of truly indigenous modern
industry.
Given its complexity,
demand and so wealth creation opportunities the automotive industry
has always been centre-stage of the development agenda. Part of that
agenda is to remain through growth the largest vehicle producing
country in Latin America and so likewise remain the most powerful
trading partner within the Mercosaur region in the 21st
century.
Thus, perhaps because
of the very nature of its 'mosaic' populace (facing across Latin and
Central America, Europe, Africa and now China), its simultaneously
multi-directional and very pragmatic foreign policy, and a history of
recycling previous foreign technology transfers under its own branded
banners, means that Brazil could be viewed as the archetypical
template of the necessary 'hybridised' and deeply 'globally
integrated' 21st century nation.
However, the present
circumstances of Brazil means that although this is already well
underway, the ambition has slowed as the country tries to rebalance
its economic basis, both internally and externally.
Today's Broad Picture -
The following provides
observational snap-shots of Brazil today as conveyed by the best
regarded - though still heavily US influenced - external agency with
remit to measure and advise on global and nationhood economic
matters.
The Central
Intelligence Agency :
Fact Book 2016.
Espoused as the “ear
to” America and the World, the CIA has become legendary and almost
mythical given its apparently enormous intelligence gathering
capabilities; that ability increasingly externally focused across the
world and with increased Presidential empowerment since WW2 and the
later half of the so called 'American Century'.
Today its activities
are worldwide and expansive, spanning hard and soft-power activities,
and though with an understandable prime focus upon counter-terrorism,
at times in service of its homeland its actions highly questionable.
Yet its breadth and
depth of intelligence gathering within the public sphere, and its
desire to appear a very useful soft-power instrument, has meant that
it publishes critical information to the world, which itself often
underpins governmental, academic and commercial economic and
socio-economic research around the world.
A key part of that
research provision is the World Fact Book for each country, Brazil
outlined by following:
To paraphrase: “In
2010 the 25 years record growth rate of 7.5% was achieved, but GDP
slowed since 2011 because of several factors including:
over-dependence on exports of raw commodities, low productivity, high
operational costs, persistently high inflation and low levels of
investment. Unemployment reached the historic low of 4.8% in 2014 but
has since risen
[NB this actually now
11.8% and resulting in a dramatic lowering of the cost-base and so
comparative productivity rates].
The previous investment
grade standing of Brazil has seen quick decline as efforts to prop-up
a positive primary account surplus failed, with the three main credit
ratings agencies prescribing 'junk' status.
Brazil hopes to restore
its strength by imposing local content and technology transfer
requirements on foreign businesses, by investing in education at all
levels and expanding its national research projects.
The general indicators:
1. GDP (Purchasing
Power Parity levels at 2016 figures) shows the country as standing as
8th in the world, behind China, EU, USA, India, Japan,
Germany and Russia, but ahead of Indonesia, UK, France, Mexico,
Italy, S. Korea, Saudi Arabia, Spain, Canada, Turkey, Iran and
Australia.
This theoretically puts
the spending power of the average Brazilian adult, business and
government in a comparatively powerful position, even though declined
in real terms since the high of 2014 when the total equalled
US$3.37tr against $3.13tr in 2016.
2. GDP (real Growth
Rates at 2016 figures) illustrate that in the real – growth
adjusted for inflation – economy, posits Brazil as ranked at 55th
in the world. The after-effects of the 2008 Financial Crisis and 2013
European Debt Crisis upon global trade so leading to contraction saw
Brazil's growth rate significantly alter, today standing at -3.3%.
This however is better than the -3.8% seen in 2015, itself possibly
the trough of the recession.
3. GDP (Per Capita at
2016 figures) shows an estimated average of $15,200, itself down $700
on the previous year, and lower by $1,400 on 2014. However, 2013 was
measured as $12,100 (then 94th in the world) which
suggests a sizeable change in government statistics or measurement
anomaly given unlikely real-world per capita leap by $4,500 in a
single year.
4. Gross National
Savings (as % of GDP at 2016 figures) shows 17.2% est, itself up on
15.9% in 2015 and the 16.7% in 2014. Presently the country stands
104th in the world.
5. GDP Composition (by
End Use at 2016 estimated figures vs 2013 figures) illustrates that
Household static with 62.5% vs 62.5%, Government has declined to
20.^% vs 21.7%, Fixed Capital Investment has declined to 15.8% from
18.3%, Exports (Goods and Services) has risen to 13.9% from12.4% and
Imports (Goods and Services) lessened to -12.7% against a previous
rise of 14.9%.
6. GDP Composition (by
Sectors showing 2016 est vs 2013 figures) shows Agriculture rose to
6.3% vs 5.5%, Industry lessened to 21.8% vs 26.4% and Services grew
to 72% vs 68.1%
[NB of these
Agriculture consists of: coffee, soyabean, wheat, rice, corn,
sugarcane, cocao, citrus and beef, whilst Industry consists of:
textiles, shoes, chemicals, cement, limber, iron ore, tin, steel,
automotive (parts and complete), aircraft (parts and complete) and
other plant and machinery items].
7. Industrial
Production Growth Rate (at 2016 figures) was a contractory -3%.
8. Labour Force (as at
2016) was 110 million people. Occupations are delineated as
(at 2011 estimate)
Agriculture 15.7%, Industry 13.3%, Services 71%.
9. Unemployment Rate
(at 2016 vs 2015 vs 2013 figures) 12.6% vs 9% vs 5.7%.
[NB the latest Q1 2017
readings being 11.4%, thus showing improvement]
10. Poverty (at 2013
figures) shows 21.4% below the poverty line and 4% below the extreme
poverty line.
11 Household Income (by
% Share at 2013 figures) shows the lowest 10% of households with 0.8%
of generated income, and the top 10% with 42% of generated income.
This demonstrates that whilst Brazil has seen much improvement, an
enormous disparity still exists between the top and bottom tiers,
with over 40% directed to what appears the ultra-wealthy 'Patron'
establishment
12 Budget (at 2016 vs
2013 figures) US$ 632bn vs $851.1bn in Revenues, and $677.2 vs
$815.6bn in Expenditure. [NB hence the relative positions have since
changed significantly].
13. Public Debt of GDP
(in 2016 vs 2015 vs 2013 figures) are 75.4% vs 66.5% vs 59.2%, now
showing as ranked 37th in the world
14. Inflation Rate (in
2016 vs 2015 figures) is 8.4% vs 9%, ranking it as 199th
in the world.
15. The Central Bank
Discount Rate (2014 vs 2012 figures) was 10% vs 11%
16. Commercial Bank
Prime Lending Rate (2017 vs 2016) is 47.4% vs 44%. Here Brazil is
only 2nd in the world for the highest 'prime rates'
(behind only Madagascar at 62%, and ahead of Malawi at 44.5%,
thereafter Argentina and Syria both on 32%). This is of course a
massive issue of major consequence, when what effectively is a much
developed country has rates so much higher than what could be termed
a 'banana republic' and what is a war-torn region. This effectively
blocks domestic lending, so becoming even more reliant upon the
stored wealth of national 'Patrons' and the FDI initiatives of
foreign corporations themselves with either cash-piles or able to
borrow at historically low rates.
17. Stock of Narrow
Money (EoY 2016 vs EoY 2015) shows $107bn vs 85.64bn, demonstrating
increased narrow liquidity. Ranked 34th in the world.
18. Stock of Broad
Money (EoY 2014 vs EoY 2013) shows $928.9bn vs $835.3bn, this period
demonstrating a substantial increase in broad liquidity. Ranked 18th
in the world.
19. Stock of Domestic
Credit (EoY 2016 vs EoY 2015) shows $2.076tr vs $1.644tr. This seen
to be raised appreciably. Ranked 13th in the world.
20. Market Value of
Public Shares (EoY 2015 vs 2014 vs 2013) shows $490.5bn vs $843.9bn
vs $1.02tr. Ranked 20th in the world. These figures
illustrate the enormous retraction from capital markets, over
one-half of the value withdrawn in the space of two years, as local
and foreign investors sought positive returns elsewhere.
21. Current Account
Balance (est 2016 vs est 2015) is -$14.11bn vs -$58.88bn. This very
positive news illustrates one avenue by which Brasilia has sought to
vie against international credit agancy down-grades. The reduction of
the balance however appears as much influenced by the deflation of
the Brazilian Real. Now ranked 184th in the world.
22. Exports (2016 est
vs 2015 est) shows $189.7bn vs $190.1bn. Ranked 24th.
23. Imports (2016 est
vs 2015 est) shows $143.9bn vs 172.4bn. Ranked 28th.
24. Export Partners
(2015) China 18.6%, USA 12.7%, Argentina 6.7%, Netherlands 5.3%.
25 Import Partners
(2015) China 17.9%, USA 15.6%, Germany 6.1%, Argentina 6%
26. Foreign Reserves
Exchange and Gold (est EoY 2016 vs 2015) $352.1bn vs $356.5bn. Ranked
10th in the world.
27. External Debt (est
EoY 2016 vs 2015) $544.1bn vs $542.3bn. Ranked 21st in the
world.
28. Stock of FDI at
home (est EoY 2016 vs 2015) $673bn vs 615bn
29 Stock of FDI abroad
(est EoY 2016 vs 2015) $295.3bn vs $288.5bn.
30. Exchange Rate vs US
Dollar (2016 vs 2015 vs 2014 vs 2013 vs 2012) 3.483 vs 3.3315 vs
3.3315 vs 2.3535 vs 1.95. This illustrates the enormous drop in value
against the US$ that the Brazilian Real has experienced, stemming
from both the massive shift of contracted global trade, the
'pull-out' from the domestic bourses by domestic and foreign
investors and the likely rise and influence of US$ driven
black-market FX exchanges, demanding ever higher differential rates
(disengenuosly) set against record prime bank lending rates.
To add greater
comprehension to the present state of Brazil's economy, the following
commentary by a commercial research firm is also given (though with
the proviso that there may be a pro-LatAm sentiment so as to promote
business).
Focus Economics :
With an webinar talk
titled “Latin America in 2017: A Turning Point?” this economic
forecasting firm sets the premis that any heightened uncertainty in
the northern hemisphere could redirect stronger investor sentiment
back toward South America.
Its mid March 2017
commentary stated that Brazil's dynamics were “bleak” with a
failure to see significant gains in Q4 2016 and another steep
contraction in GDP, progressing the worst (technical) recession on
record. High unemployment, austerity measures and tight monetary
policy hamper the economy with “muted” gains in Q1 2017.
Industrial output sank in January whilst business confidence fell in
February. However February also saw improvements in consumer
confidence and manufacturing PMI, so providing reason for shift in
general sentiment.
Of further assistance
has been governmental creation of an infrastructure concession
programme as of 16.04.17 so as to prompt renewed investment interest
– to the value of US$14bn – in various national airports.
To Follow -
The observations of the
Organisation for Economic Cooperation and Development.
