Roosevelt Institute | Cornell University

What Happened to the Brazilian Boom?

By Lorenzo de SimonePublished October 13, 2013

Brazil has been at the forefront of growth in a period where major economies have stagnated. However, recent unease due to a sluggish economy suggests that government reform must take place in order for Brazil to relive the period of 'economic miracle'.

by Lorenzo de Simone

Brazil has become an economic powerhouse, turning into one of the worlds leading emerging markets. After barely stumbling in the 2008 Lehman collapse, in 2010 Brazil grew at its fastest rate in 24 years with a 7.5 % expansion, not far behind growth rates in China and India of 10.4% in that same year.

However, since then the economy has stuttered, slowing down to 2.2% in 2007 and just 0.9% in 2012. Although this deceleration should not be taken lightly, in the past quarter century a better jobs market, a better social safety net and improved policy reform such as President Lula's Bolsa Família have helped lift 25 million people out of poverty. Why has there therefore been a short-lived economic spurt in Brazil?

The answer can be found in light of the summer riots where tens of thousands marched through the streets of Sao Paolo, Rio de Janeiro and Brasilia in the biggest protest for a generation. This unease over Brazil's recent sluggish economy has much to do with the lack of government reform both recently and in the boom years. Brazil's public sector imposes a particularly heavy burden on its private sector as companies face the most burdensome tax codes that add to 58% of the Governments salaries. What is even more absurd is that though Brazil is still a young country, the government spends 11% of its national income on pensions. The average Brazilian can look forward to a pension of 70% of final pay at the age of 54.

A return to growth means the Government must return to the reforms it dropped during the decade known as the ‘economic miracle'. First, it needs to reshape public spending such as trimming pension benefits in order to fund primary and secondary schools that are underfunded compared to universities because of the pensions that are given to teachers. Second, it needs to partner with the private sector to provide infrastructure especially in preparation of next years FIFA World Cup. Third, in order for Brazilian business to flourish and become more competitive, they must be exposed to more foreign competition and eliminate self-inflicted obstacles at home through forging more networks of bilateral trade deals.

The resonance of this summers demonstrations underscores what economists say will be a challenging period for President Rousseff. In a low growth environment where public services do not meet the demand of the growing middle class, voters are likely to be increasingly disgruntled when it comes to next year's election.