Lights quickly fading in Brazil!

A few weeks ago I wrote a post called “Why Brazil doesn´t grow”. Note that I didn´t ask why Brazil´s growth is dimming. I thought the lights had not been bright for some decades. Two recent articles deal with Brazil. One is pessimistic, the other tries to put a positive spin.

The “positive spin” is provided by the well-known brazilianist Albert Fishlow who writes “Down but not out” in the latest issue of Foreign Policy. The pessimistic view is provided by Ruchir Sharma in “Bearish on Brazil” in the latest issue of Foreign Affairs.

In Fishlow´s take there´s a lot of wishful thinking, and I believe Sharma´s view is more realistic.

According to Sharma: “The would-be giant stands on feet of clay. The economy depends too much on high commodity prices, and as demand falls, so may Brazil.”

That´s just one more manifestation of the age-old saying that Brazil is “the country of the future” – or “would-be giant”. But as we well know, the future is, well, always in the future!

Funny to realize that in the BRIC acronym B(razil) takes “front seat”. In real life it takes the “back seat”. To reflect reality, the acronym should read CIRB!

China is in the “driver´s seat”. Unfortunately China´s “pull” over the last decade, since it became a member of the WTO, had only a marginal effect on Brazil. Even so, a marginal effect can make people optimistic if incomes rise a bit after two decades of stagnation. But as China “shifts down” even that marginal effect will fade.

The chart provides a good illustration.

9 thoughts on “Lights quickly fading in Brazil!

  1. Russia and Brazil underperforming China post China’s accession to the WTO is consistent with a Second Great Divergence (see Jeffrey Williamson on the First one). China’s post-accession productivity growth acceleration causes its terms of trade to fall and raises those of commodity exporters (Brazil, Russia), which contract an acute case of Dutch disease. All get richer but China pulls away from Brazil and Russia.

    • Tim – With the “acute Dutch disease” you´re playing right into the hands of our finance minister! There are studies that indicate the DD effect is small and swamped byall the other “Brazil costs”.

  2. You and the finmin may both be right. Your prescription — reduce “Brazil” costs — is still first-best.

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