Posted on Fri, Dec. 16, 2011
Brazil still might be the darling of foreign investors and Miami real-estate agents but as the year draws to a close, its once booming economy is slowing.Fueled by a commodities boom, a growing middle class, and mineral wealth, Brazil’s economy hummed along with a 7.5 percent growth rate in 2010. But now most economists are pegging gross domestic product growth at 3 to 3.5 percent this year — and in its most recent forecast, Fitch Ratings said the Brazilian economy would grow only 2.8 percent.“Brazil is slowing down; it’s been slowing down since the second quarter,’’ said Guilherme Da Nobrega, senior economist at Sao Paulo-based Banco Itaú, during a recent visit to Miami. His estimate has been revised down from 3.6 percent to 3 percent growth.
The Brazilian economy, he said, “was growing too fast at the end of last year.’’ Inflation also was rising.
That economic exuberance — coupled with a strong real and depressed local real-estate prices — drove Brazilians to Miami in 2011 to buy everything from ocean-view condominiums to sports gear, iPads, and fashion.
The Brazilian economy also is closely watched in South Florida because Brazil is the region’s top trading partner, and earlier this year a group of nearly 200 Floridians traveled to Brazil on a trade mission led by Gov. Rick Scott.
To cool things down, the Brazilian government adopted tighter economic policies at the beginning of 2011; its central bank also raised rates. The government also held back on public spending for infrastructure projects, such as bridges, said Da Nobrega, who spoke at the Americas Society/Council of the Americas Latin American Predictors Forum in Coral Gables earlier this month.
“That did the trick,’’ said Da Nobrega.
But Brazilian industrial production began to slump in the third quarter and was down 2.2 percent in October compared to the previous year. Twenty out of 27 sectors contracted during the month, according to Barclays Capital.
Though it is still considered strong, the Brazilian currency also began to bounce around this fall — a change that has affected some Miami real-estate purchases. The real has fallen 8.1 percent against the dollar in the past three months.
With the economy weakening, Brazil’s central bank began cutting rates in August.
And to counteract the potential impact of a widening European financial crisis, it took several measures Dec. 1 to stimulate and strengthen the economy. They included tax cuts on financial operations, tax credits of up to 3 percent on 8,500 manufactured products destined for export sales, and increased home-value eligibilityfor developer tax breaks under the My Home My Life program.
To encourage the inflow of long-term foreign investment capital, for example, the taxes on foreign investment in stocks and venture capital were cut from 2 percent to 0.
The tax on so-called white goods — stoves, refrigerators, washing machines, and the like — also was cut to encourage the consumption of durable goods.
Da Nobrega said he anticipates “another couple of months of negative numbers” before the economy begins to pick up again. With the tax cuts, he said, the Brazilian economy should be growing by the second quarter and he predicts growth of about 3.5 percent in 2012.
“We are happy with that number,’’ he said. With current policies, he said, there’s a little more risk for higher inflation but a bit less risk of slow growth.
But Da Nobrega said Brazil will have to continue to watch the European situation closely.
Meanwhile, with the approach of the 2014 World Cup in several Brazilian cities and the 2016 Olympic Games in Rio de Janeiro, Brazil is in the midst of an investment boom. “We don’t run any risk of over-investment in Brazil,’’ Da Nobrega said. “As long as there is financing at all in the world, Brazil is going to take an important chunk of it.’’
Figures released by Brazil’s central bank Thursday showed that the United States wasstill Brazil’s biggest foreign investor with $105 billion in investments, excluding inter-company loans, at the end of 2010. And although China has replaced the United States as Brazil’s top trading partner, Chinese investments totaled just $8 billion, putting it in 16th place among foreign investors in Brazil.
Overall, foreign investment increased from $163 billion in 2005 to $580 billion in 2010, according to the central bank report.
Other analysts also say that 2012 seems to be shaping up as a better year for Latin America’s largest economy.
“The recent depreciation of the Brazilian currency plus the slowdown in inflation and the drop in interest rates will be very helpful for improving the health of the Brazilian economy,” Eugenio J. Aléman, senior economist at Wells Fargo Securities, said in a report released last week.