The current performance of Brazilian

Economy
By:
IBRAHIM ALI

TP033191

BM002-3-1-BES - Business Economics

(Individual Assignment)

Lecturer: Ms. WONG HUEY WERN

LEVEL: 1
WORD COUNT: 1511 words
Submission Date: 23-06-2014
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2.1 Table of Contents

1.0

INTRODUCTION .................................................................................................................. 2

2.0 MACRO ECONOMIC FACTORS AFFECTING THE ECONOMY .................................................... 3

2.1 GDP (GROSS DOMESTIC PRODUCT) ................................................................................................. 3
2.2 INFLATION RATE ........................................................................................................................ 4
2.3 UNEMPLOYMENT RATE ............................................................................................................. 5
2.4 NET EXPORT............................................................................................................................... 6
3.0 ANALYSIS AND EVALUATION OF ECONOMIC PERFORMANCE ............................................... 7
3.1 GDP ........................................................................................................................................... 7
3.2 UNEMPLOYMENT RATE ............................................................................................................. 7
3.3 INFLATION ................................................................................................................................. 8
3.0 NET EXPORT............................................................................................................................... 8
4.0

REFERENCES ...................................................................................................................... 9

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1.0 INTRODUCTION
Brazil is the largest country in the South America bounded by Atlantic Ocean. Also
they are one of the largest economies in the world with well-developed agriculture, mining,
manufacturing and service sector. Brazil underwent populist and military government for
almost a half century. However military regime was peacefully ceded the power civilian
rulers in 1985. After that Brazil economy was pursued towards agricultural and industrial
growth and development of the country. This allowed the country a vast exploitation of
natural resources and large pool of labor. (CIA, 2014) Natural gas was discovered in Brazil in
the early 21st century. Brazil is today South Americas leading economic power and leader of
the region. Also they are the one of the first economy in the area started economic recovery.
As of today 1/5 of Brazilian work force is involved in agricultural sector and their main crop
is coffee. They also have a vast mineral wealth including iron ore, tin, quartz, chrome ore,
manganese, industrial diamonds, gemstones, gold, nickel, bauxite, uranium, and platinum. It
is highlighted that Brazil is the world largest producer in iron ore and coffee. Brazil is one of
the member counties of mercosure (Columbia University Press, 2012; Columbia University
Press, 2012)

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2.0

MACRO ECONOMIC FACTORS AFFECTING THE ECONOMY

A macroeconomic factor is a characteristic, trend or condition that comes from or

applies to a broad aspect of an economy rather than a certain population. The main macro
economic factors are inflation, unemployment, GDP, balance of payment, interest rate,
exchange rate etc. in this report I will focus on 4 of the main macroeconomic factors that
affects the economy of brazil and how well the economy was performed over past few years.

2.1

GDP (Gross Domestic Product)

GDP is the total market value of all final goods and services produced in the country

over a period of time. It is equal to the total value of consumer spending, government
spending, investments and net exports.
With the GDP of $2.4 trillion in 2012 Brazil has world 7th wealthiest economy in the
world. The service sector is the largest component of GDP at 67.0 percent, followed by the
industrial sector at 27.5 percent. Agriculture represents 5.5 percent of GDP in 2011. Also
they are the largest economy in the Latin America. In recent years Brazil has been one of the
fastest growing economy in the world mostly because of export potentials. The countrys
trade was driven by natural resources and divers agriculture and manufacturing productions.
More over increasing domestic demand, skilled work force, scientific and technological
development in country has lead to attract more foreign investors to Brazil economy. This has
increased foreign investment in the country. However corruption, bureaucracy and weak
infrastructure has been the biggest obstacle for the development of the economy. (Palifka,
2006)
The following is the statistical information of total GDP of Brazil from 2005-2013
reported by World Bank group (trading economics, 2013)

GDP IN BILLIONS (USD)

2196.9 2295.8

2005

2006

2453

2007

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GDP IN BILLIONS (USD)

2825.5 2648.9
2444.9 2435.2
2183.9 2256.3

2008

2009

2010

2011

2012

2013

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2.2

INFLATION RATE
Brazil has an annual target of 4.5% inflation rate, which is measured by official

consumer index IPCD (ndice Nacional de Preos ao Consumidor Amplo). And a variation of
2% above or below the official rate is allowed under the countrys policy. (TREVISANI,
2014)
The main measure used to fight inflation in Brazil is interest rate. When there is high
inflation or inflation rate at the ceiling of official target rate, the central bank increases the
interest rate causing to decrease the inflation rate. However, despite high inflation sometimes
the central bank pauses the spike of interest rate. Recently central banks monetary committee
known as copom, kept their exchange rate at 11% breaking a steak of 9 consecutive hikes as
expected by the majority of analysts and market traders. (TREVISANI, 2014)
14
Inflation, end of period
consumer prices
Inflation, average consumer
prices

Rate of inflation in %

12
10
8
6
4
2
0

Year

Source: (international monetary fund, 2012)

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2.3

UNEMPLOYMENT RATE
Unemployment rate in Brazil is determined by monthly survey coordinated and

conducted by Instituto Brasileiro de Geografia e Estatstica (IBGE). This survey is conducted

in six largest metropolitan areas. Brazil has relatively lower rate of unemployment compare
to other countries in the region.
The following is graphical illustration of unemployment rate in Brazil from 2002 to
2013 provided by the international labor organization (ILO).

unemployment rate in brazil (%)

14
12.6

12

12.344
11.487

10

9.859 9.996

9.318
7.903 8.087

7.35

6.74

5.966

5.393

4
2
0
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: (ILOSTAT DATABASE, 2014)

According to this graph the economy has driven towards a decreasing trend of
unemployment rate. There is an increasing the rate in only 3 years 2006, 2009 and 2012.
However the highest unemployment rate registered since 2002 were 13.1 in April 2004. And
the lowest rate registered was 4.3 on December 2013.

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2.4

NET EXPORT
Net export is the difference between a countrys total value of export and imports. To

have a favorable balance on current account in balance of payment, net export plays very
important part. It is very important to have a positive figure as net export.
Brazil has been on of the country, which enjoys a favorable net export since 2002.

Import and expot of brazil in ($ millions)

300,000
250,000

value in millions

200,000
Exports

150,000

Imports
100,000

Net export

50,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
-50,000

Source: (Ministrio do Desenvolvimento, Indstria e Comrcio Exterior, 2013)

According to above graph Brazilian economy has driven towards an increasing net
export from 2000 to 2006. And after 2006 there is a downward in net export. This maybe
caused to an increasing import of raw materials and capital goods. When taking import and
export into accounts, there has been an increasing trend in both export and imports. However
in 2009 there is a huge decrease in both import and exports.

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3.0 ANALYSIS AND EVALUATION OF ECONOMIC PERFORMANCE

The analysis and evaluation of economic performance were made based on my research
and data on graphs provided in this report. Also I have done a forecast based on current
activities going on in Brazil economy and upcoming activities.

3.1

GDP
GDP is the one of the main important element of macro economy, which is used to

measures the performance of an economy. Based on my research it is safe to say that the
Brazils economy is performing well in terms of GDP. Because even though there has been a
decrease in GDP in 2009 and 2010, mostly there has been an increasing trend in GDP. That
decreasing trend could be the global economic down turn caused in 2008. And also Brazil is
one of the country in the area begin economic recovery. Moreover Brazils GDP is expected
to be grown in upcoming years. One of the reason for this growth could be Petrobras, which
is the largest oil producer in Brazil has an ongoing plan of investing US$220.6 billion and
looking to double current production of oil by 2020. (patrobras, 2014) This will have a great
positives impact on Brazils GDP. Also this years world cup being held in Brazil will also
contribute to GDP. Because a large number of foreigners coming to watch world cup will
lead to increase spending in the country at least for some time. However the current unrest in
the country might have negative impact on GDP growth.

3.2

UNEMPLOYMENT RATE
Brazil has a very lower rate of unemployment compare to other countries in the region.

And also unemployment rate has a downward trend in between 2002-2013. And also it is
expected to fall in upcoming years. Because the patrobras plan to double their production will
create lot of jobs in the country. Also Brazil managed to have a lower rate of unemployment
despite having a lower growth rate. So the economys unemployment rate has been
performing well. However, having a lower unemployment rate will not be effective if there is
a high inequality in the country.

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3.3

INFLATION
As mentioned earlier Brazil has a target inflation rate of 4.5% annually. And 2% above

or below the rate is allowed under their policy. Based on my research information it looks
inflation rate in the country is quite unstable even though the rate is in between their targeted
rate in most of the years. Because not only the raising inflation rate over the target rate, but
also rate of inflation is at the ceiling of the targeted rate when the rate is in their target range.
This cannot be good for the growth of an economy. Of course a small rate of inflation causes
a growth in an economy but not this high rates. Moreover, it looks central bank is not using
its monetary policy to control inflation effectively. Because recently in may 2014 the central
bank decided to keep the interest rate unchanged at 11% despite of having the inflation rate at
the ceiling of targeted rate at 6.5%. (Soto, 2014) So in my opinion the countrys inflation rate
is not performing well.

3.0

NET EXPORT
Brazil has been enjoying a favorable balance in net export since 2001. However there is

a decreasing trend in net export after 2006. This means the countrys import has been
increasing. One of the main important things about a very large proportion of import is
capital goods and raw materials. So this increasing import might have a positive impact on
countrys growth and export in long term. Most capital goods and raw materials would be use
for production and development of the country. This will increase the export of goods and
services. Moreover, patrobras plan to expand their production will enable to export more
quantity of oil. On the other hand, decreasing the exchange rate of Brazils currency will
increase the cost of import and decrease the cost of export. (Macropress, 2012)Hence this will
cause to decrease import and increase export. So based on my research I would say that the
brazils net export has been performing well and it is expected to be increase in upcoming
years.

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4.0 REFERENCES
CIA, 2014. the world fact books. [Online] Available at:
https://www.cia.gov/library/publications/the-world-factbook/geos/br.html [Accessed 18 june
2014].
Columbia University Press, 2012. South American Political Geography. [Online] Available
at: http://www.infoplease.com/encyclopedia/world/brazil-economy.html [Accessed 17 june
2014].
trading economics, 2013. trading economics. [Online] Available at:
http://www.tradingeconomics.com/brazil/gdp [Accessed 18 june 2014].
Palifka, B.J., 2006. Corruption and Entrepreneurship in Brazil. [Online] Available at:
http://homepages.mty.itesm.mx/bpalifka/Palifka.pdf [Accessed 18 june 2014].
TREVISANI, P., 2014. Real Time Economics. [Online] Available at:
http://blogs.wsj.com/economics/2014/05/28/brazils-lasting-inflation-raises-fears-of-out-ofcontrol-prices/ [Accessed 19 june 2014].
international monetary fund, 2012. world economic outlook database. [Online] Available at:
http://www.imf.org/external/pubs/ft/weo/2012/02/weodata/weorept.aspx?pr.x=53&pr.y=0&s
y=2000&ey=2012&scsm=1&ssd=1&sort=country&ds=.&br=1&c=223&s=NGDP_RPCH%2
CNGDPDPC%2CPCPIPCH%2CPCPIEPCH%2CLUR%2CBCA&grp=0&a= [Accessed 18
june 2014].
ILOSTAT DATABASE, 2014. quandi. [Online] Available at:
http://www.quandl.com/ILOSTAT/UNE_DEAP_RT_SEX_T_BRA-Unemployment-RateAnnual-Brazil [Accessed 18 june 2014].
Ministrio do Desenvolvimento, Indstria e Comrcio Exterior, 2013. [Online] Available at:
http://www.desenvolvimento.gov.br/sitio/interna/interna.php?area=5&menu=608 [Accessed
19 june 2014].
patrobras, 2014. [Online] Available at: http://www.petrobras.com/en/magazine/post/oil-andgas-sector-contribution-to-brazilian-gdp-reaches-13.htm [Accessed 17 june 2014].
Soto, A., 2014. reuters. [Online] Available at:
http://www.reuters.com/article/2014/05/29/brazil-economy-ratesidUSL1N0OE0GR20140529 [Accessed 19 june 2014].

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