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2014, the year of Brazil?

Economic Comment

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This year, Brazil will host the World Cup. Over the last few years, the performance of the Samba Kings has been a bit disappointing, until they won last year’s Confederations Cup. Immediately, Brazil is once again one of the favourites to win the World Cup.

Economically, Brazil has taken the opposite course. After the Brazilian economy grew by an average annual rate of 4.5% in the period 2004-2010 and Brazil became a BRIC, economic growth has been meagre in recent years. Is the Brazilian growth model losing its lustre? We think so. Only when Brazil manages to increase investment and productivity, its economy can get back the dynamism of the first decade of this century. This is one of the main conclusions in our series of background studies on the Brazilian economy.

In this series, we first give a short overview of Brazil’s turbulent macroeconomic history in 'Brazil's macro economy, past and present'. Next, we explain in Economic Report 'Brazil's economic model, in need of a revamp' why the commodity, credit and consumption driven model of the first decade of this century can no longer deliver high growth rates. The latter is related to a number of structural issues which we cover in 'How to tackle the 'Custo Brasil', such as a complicated and high rate tax system, red tape and lack of infrastructure and education.

Figure 1: Economic growth Brazil
Figure 1: Economic growth BrazilSource: EIU
Figure 2: Poverty and income inequality
Figure 2: Poverty and income inequalitySource: OECD

Progress is therefore likely to be slow. Partially as implementing reforms is difficult and time-consuming, which is related to the way Brazil’s democracy works, as we illustrate in the study 'Democracy, Brazilian style'. Nonetheless, in the past decade Brazil has experienced a social evolution, as we explain in 'Brazil's social challenges'. Many Brazilians have managed to get out of poverty and the traditionally high inequality has been significantly reduced. Still, there are still large, and to a large extent institutional, challenges. 

Moving back to the World Cup. Is the Cup going to make a big difference to the Brazilian economy? The economic impact is likely to be modest, but, as is explained here, hosting the World Cup can be best compared to hosting a (rather expensive) party. Most of the time, one does not host a party for pecuniary gains, but for the experience. 

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