Brazil economics

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Brazil economics

  1. 1. EconomyBrazil[Author Name]
  2. 2. Table of ContentsPart 1 ....................................................................................................................................... 3Introduction ......................................................................................................................... 3Period before economic slowdown (before 2008) ................................................. 4 Period before 2003 ..................................................................................................................... 4 Period from 2003 – 2008 .......................................................................................................... 4Period after economic slowdown (post 2008) ......................................................... 5Facts and Figures ................................................................................................................ 5Part 2 ....................................................................................................................................... 6Brazil CPI ............................................................................................................................... 7Part 3 ....................................................................................................................................... 8
  3. 3. Part 1Introduction The economy of Brazil is characterized by well develop and largemanufacturing, agricultural, mining and service sectors. Brazil has probably the bestand most stable economy in the entire South America. Brazil is on an expansion pathand today many other economic powers have recognized the importance and value ofBrazil economy on the world map. Since 2003, the government of Brazil has workedin order to maintain high foreign reserves and in fact government is successful inimproving the levels of macroeconomic stability. Brazil has shifted its debt burden toinstruments that are held domestically. Brazil efforts from 2003 started to reflectsgood output and it was year 2007 when Brazil got two investment grade status awardsfrom two rating agencies. 2008 was the first year when Brazil became the net externalcreditor for the first time. Probably the year 2007 and 2008 were the most valuable years in the economyof Brazil. However like many other countries, Brazil was also hot by the economicand financial crises of 2008. That was the time when exports of Brazil dwindled andBrazil, like many other countries, experienced recession. Having said that, one of thepoints worth mentioning is that Brazil was one of the few emerging and developingmarkets that recovered quickly. Only after 2 years, in the year 2010, Brazil was ableto get a strong GDP growth of 7.5%. It is the highest GDP growth for Brazil in thelast 25 years. However due to bad market conditions and global slowdown authoritiesin Brazil were not able to control the wide spread Inflation. Consequently Brazil hadto adopt certain measures to cool down the growth of economy and in the year 2011the growth slow down to little below 3% level. The period before the economic crises
  4. 4. of 2008 and after the period of 2008 can be better discussed under followingheadings: -Period before economic slowdown (before 2008) If the timeline of Brazil is constructed for the economic conditions, then year2003 and year 2008 are the major points where transition occurs. As discussed above,it was year 2003, after which Brazil started to outcast its presence in Internationalmarket.Before 2003 2003 2003 - 2008 2008 Post 2008Timeline of Brazilian economyThe entire period before global meltdown of 2008 can be discussed as: -Period before 2003 Before 2003, the economy of Brazil was driven by agriculture. The gates toforeign investment were not completely open and government mainly emphasize ondomestic countries.In the international market Brazil was not considered as a threathowever Brazil was a key player as far as South American market was considered.The agriculture and mining was the main occupation of people and service industrywas in its early phase.Period from 2003 – 2008 This was primarily the growth period in the economy of Brazil, 2003 was theyear when government adopted certain reforms and that was the time when Brazilstarted to outcast its image in the International market also. This period also witnesseda transition change from manufacturing based industry to service sector industry.
  5. 5. 2006 – 2008 was the period when Brazil started to reap the benefits of change ineconomic policies. The growth was remarkable in this period and year 2007 witnesseda GDP growth of more than 7%.Period after economic slowdown (post 2008) As a matter of fact there was not a single company in the world that was notaffected by the global meltdown, Brazil also suffered some serious setbacks. It wasthe result of this setback that in the time of 2 years only (2008 - 2010) the GDPgrowth falls by 5% (from 7.5% to 2.5%).As of today the economy of Brazil is theseventh largest in the world and it is expected that in coming year the economy ofBrazil would be fifth largest in the world. Post 2008 the employment level also observed certain low points. As a matterof fact the urban unemployment touched the historic low of 4.7% in December 2011.Till 2008, it was considered that Brazil has somewhat decent level of Income equalityhowever after 2008 the disparity levels rose between the average income levels. One significant thing about Brazil is that the interest rates have been generallyhigh in country; as a result it is one of the favorite destination of foreign investors.The currency of Brazil has appreciated against several other countries in the pastseveral years. This also had the negative impact on the domestic manufacturingindustry of the country, due to this government intervened and raised the tax levels onsome of the foreign capital inflow.Some of the facts about the economy of Brazil canbe presented as:-Facts and Figures
  6. 6. Rank 6th Nominal, 7th PPPGDP $2.5 trillion (nominal), $2.3 trillion (PPP)GDP per capita $12,900 (nominal), $11,800 (PPP)GDP by sector Agriculture 5%, Industry 28%, Services 67% Post 2008, after the global financial meltdown, the government of Brazilrealized that it would have to provide certain stimulus to the economy and at the sametime the high growth rate targets were reduced. In order to increase the liquidity in themarket, government provided certain stimulus packages. At the same timegovernment also realized that this global financial meltdown is taking on people jobs,so in order to create more of domestic jobs the government invested in many projectsof shipping ports through out the country. Brazil government knew that they are alsoshattered with the economic meltdown however government had the long term visionand it devised and implemented the ways by which negative effects of meltdown canbe minimized. Government also looked for various infrastructure projects where itcan spent so as to create more of employment opportunities. Their was a mix impact, it was positive in a way that there were jobopportunities in the country, however at the same time many experts and researchershave accused government of excess deforestation. It has been reported that thegovernment overlooked the environmental concern and involved itself in lot ofdeforestation just on the name of infrastructure project.Part 2 Period Inflation Period Inflation (USA) (CPI) (BRAZIL) (CPI)
  7. 7. october november2012 2.162 % 2012 5.533 % october november2011 3.525 % 2011 6.641 % october november2010 1.173 % 2010 5.635 % october november2009 -0.183 % 2009 4.219 % october november2008 3.655 % 2008 6.388 % october november2007 3.536 % 2007 4.188 % october november2006 1.306 % 2006 3.017 % october november2005 4.348 % 2005 6.216 % october november2004 3.189 % 2004 7.237 % october november2003 2.041 % 2003 11.019 % Brazil CPI
  8. 8. USA CPIAs presented in the above diagrams, the CPI level is stable in Brazil post 1995, as amatter of fact Brazil has faced serious inflation before 1995 and that was the period ofhigh cycle in Brazil.In USA Inflation is somewhat under control, the fluctuation is there but then the levelof fluctuations is less.Part 3 With Globalization, world has become a smaller space and at the same timeinvestors have got the chance to invest in the international market. Gone are the dayswhen investment decisions were made only inside domestic boundaries. As presentedin the case that the investment in both the countries (USA and Brazil) would be in ahigh quality organization, hence the chances or risks factors are less. While decidingupon this investment decisions there are various factors that would be taken care of,some of these factors are discussed below: -Political factor
  9. 9. It is required that political atmosphere of the country should be conducive towork. Many researchers and experts have believed that investment decisions shouldnot be made in the countries where there exists political uncertainty. Comparing onpolitical grounds, I believe that USA is more stable than Brazil. Brazil is a developingnation and political problems are more as compared to USA.Legal Before making any international investments decision, investors must realizethe legal structure of the country. Investors must have the idea that what are the legalconstraints in the country and what re grounds on which investor can be challenged.For this activity it is always preferable that investors should contact some local peoplein the country.ROI (return on investment) The first motive and aim of any investment is to get handsome returns. Many atimes it is not easy to calculate the return on investment, however every investorshould try to figure out the expected cash flows from the investment and find thereturn on investment.Time value of Money This is similar to the concept of ‘opportunity cost’ in economics, their exists atime value of money for every money invested by investors. The idea of everyinvestment is to get maximum returns within the time frame as initially expected.Investments should not be done if profits are realized after a long time.Attractive Factors
  10. 10. Attractive factors are one that prefers the investment for this uncoveredinternational investment; I believe that ROI (Return on Investment) is the mostattractive factors among all the factors. If any foreign investment is able to providethe positive returns then investment can be made on that. Second attractive factors isthe economy of country itself, if the economy of foreign country is growing thenagain the investment decision can be made.Unattractive factors Factors such as Social, Technical etc are unattractive factors; these factors donot have much influence over the investment decision in foreign firms.As discussed above the factors to invest or not to invest would depend upon the lot offactors. It is the matter of chance if attractive factors outweigh unattractive factorsthen investment decision is made in favor otherwise investment decision is madeagainst, i.e. uncovered international investment is not made. The uncovered foreign investment also has the risk associated to fluctuationsin currency, for example at present 1 USD is around 2 Brazil reals however in futurethis equation can change considerably. If this equation is changed then investor canbear certain losses in the investment, though sometimes this can be good alsohowever this does increase the associated risks, therefore this kind of investmentsshould only be made if investors have the risk taking capabilities.Neutral FactorsNeutral factors are those, which does not have any impact on the decision ofinvestment. These are the factors like Environmental factors. Investors, investing in
  11. 11. international market often think about the environmental factors and atmosphericconditions.Example of USD and EURO

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