The Brazil quarter growth rate of 0.2 percent has frustrated a lot of investors. Some would even say that the honey moon between the big of South America and international investors is now bitter. The creator of the term BRIC, Jim O'Neil, thinks that analysts are always exaggerating perspectives and that's now the case with Brazil.
“Financial markets go from one extreme to the other when the expectation about a country is not confirmed. The forecasts of Brazil growth were too high, mainly after the 7.5 percent GDP rate of 2010. Adjustments were already necessary then. But now some analysis are exaggerating the problems and risks of Brazil”, told O'Neill to the BBC.
Morgan Stanley's Ruchir Sharma is less optimistic. In an article on Foreign Affairs magazine, he raised questions about Brazil's dependence on China. The South American country relies heavily on commodities prices, but a Chinese slow down could hurt Brazil, according to Sharma.
Many investors betting in Brazil did not know much about the high costs of the country in electricity, taxes, bureaucracy, telecommunications, or the anemic government investments on education and infrastructure. This is one of the reasons because its growth has been behind other emerging markets and other South American countries over the last years. Even Mexico in the last month has grew more than Brazil. However, it is important to check what really caused the quarter's slow down.
Agriculture is one of the main assets of the country. It has shown a huge decline of over 20 percent in the quarter due to a severe drought in the south, affecting the production of corn, soybeans, and rice. Also, some important companies such as Petrobras and JBS have a lot of issues. Inexperienced investors have lost a lot of money on Petrobras not knowing about Petrobras' mismanagement and political influence.
In January and February Brazilian consumers have increased their debt starting to pay over and reducing consumption in March. The financial sector is being affected by interest rate cuts. Importers and exporters are rethinking strategies because the government decided to join the protectionist war.
The bubble was named by Neil Shearing from Capital Economics consultancy: “There was an enthusiasm bubble in Brazil. Now it has burst.”
↧