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Thursday, September 14, 2006

Jonathan Wheatley, Brazil and the BRICs

I have always thought that the idea of the BRICs group of economies was an ill-born child. On the one hand China, India and Brazil, partly because they are large countries, and partly because they are in the process of getting their demographic dividend , are bound to grow in importance, and, each in their own way, become growth engines of the future (I made part of this argument yesterday in this post on Indian Economy Blog). On the other hand Russia is big, but getting smaller, and is experiencing a demographic penalty, not a demographic dividend.

That Goldman Sachs didn't quite get this thing a little wrong is one thing (they were at least early in recognising the importance of India and China) , and reading this kind of silliness from Jonathan Wheatley in the FT this morning really quite another:

When Goldman Sachs coined the term BRICs for Brazil, Russia, India and China in 2001, it did so to call attention to the four countries’ potential for fast and sustained growth. By 2041, it predicted, their economies would be worth more than those of the US, Japan, Germany, the UK, France and Italy put together.

The BRICs are on target to fulfil that prediction. But they would do so more quickly if their average rate of growth were not being held back by Brazil.

Firstly it is obvious that Brazil isn't holding anyone else back, anyone else apart from Itself. Secondly it is clear that the chap doesn't know that this isn't only about size, but also about demography.

China’s economy grew by 11.3 per cent year on year in the second quarter. Brazil’s grew by 1.2 per cent. It is set to grow by a miserly 3 per cent this year, probably making it the laggard not just among the BRICs but among all the world’s emerging markets.

Something struck me as odd about this growth rate, Brazil isn't China, but still, it isn't doing that badly. So I couldn't help noticing on Bloomberg that the IMF in its World Economic Outlook predicts that

"Economic growth in Latin America will slow to 4.2 percent next year......This year, Argentina's economy will expand 8 percent, Venezuela's will grow 7.5 percent, Brazil's 3.6 percent, and Mexico's 4 percent"."

So Brazil's growth this year could well be 3.6% and not the (evidently highly selective 2nd quarter y-o-y figure of 1.2%). If we wish to understand what may be going on here, the next paragraph should help clear up some doubts:

"Brazilians themselves seem not to care about growth. President Luiz Inácio Lula da Silva of the left-leaning PT party appears comfortably assured of winning another four years in office at elections next month."

And get this:

"The reasons for the president’s popularity are many but chief among them is global demand for Brazilian exports – led by China, India and other faster-growing markets. Brazil is recording trade surpluses of more than $40bn a year and, consequently, its currency has appreciated by 65 per cent against the US dollar since the end of 2002.

Inflation is at its lowest level in decades. As the spending power of the poor has increased, the prices of many foods have actually fallen.

The rich are doing nicely, too. Brazil’s central bank uses high interest rates to fight inflation and although its benchmark rate has fallen by 5.5 percentage points in the past year, it remains among the world’s highest, at 14.25 per cent a year. This creates a bonanza for anyone with capital to invest."

The impression I get from all of this is that things in Brazil are now much better than they used to be, and long may they continue that way. Obviously there is always much more to do in terms of reform, but Lula has a delicate line to walk. And in the meantime Jonathan Wheatley's article is not only a diservice to the paper whch published it, it is also a diservice to the cause of economic literacy.

And in the meantime, on we go: Brazil Economy Watch.

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