6.

0 Assessment of Brazils changing position in the global economy

6.1 Introduction
A Goldman Sachs economist, Jim ONeil first introduced the acronym, BRIC of which
Brazil is the first member. (The Economist, 2011) With this in mind Brazil is in line
with China and India in its economic ambitions to be a dominant player on the world
market. Daniels et al (2007) also found that Brazils success so far is built on transition
from a command and mixed economy to a freer market and by building stable
institutions that complement her objectives. To inquire further, this research by Ahmed
Khan aims to shed light on Brazils pattern of economic growth with the help of the key
indicator; GDP and its demographics. Moreover, it considers the contributing factors
towards economic growth and changes in population structure and their implications.

6.2 GDP Growth Pattern

Figure 6.1 the Pattern of GDP Growth in Brazil over the Last 20 Years
Source: International Monetary Fund (IMF), 2012
The figure 6.1 (IMF, 2012) illustrates that there were two instances where Brazils
economy contracted. In the year 1992 and 2009, it went below the stagnant levels of
growth. For the years 1998-99, the economy remained flat with very little upward trend
towards the end of 1999. The year 2009 saw Brazils greatest decline as every economy
had to adjust to the global financial meltdown. Ironically in 2010, Brazilian economy
bounced back and peaked its highest at 7.49% thanks to its expansion in the industries
like mining, manufacturing, agriculture and services. (OECD, 2010)
Brazils current GDP stands at 3.5% (IMF, 2011). A high level of global uncertainty
has in turn hit Brazils industrial sector as reported by Wall street Journal (2011). The
recent troubles in the economies of the Eurozone also meant the Brazils revenue
through exports would feel the burnt. Another key factor has been the increase in
inflation (Central Bank of Brazil, 2011) at around 6.5%. This suggests a lower level of
local consumption and subsequently slows economic growth. Moreover, Pearson
(Financial Times, 2011) lists a major contributing factor to be Brazilian governments
measures to slow credit growth. Such factors have meant the Brazil is well off its
previous hike in GDP in 2010.
Figure 6.2 the Projected Pattern of GDP Growth in Brazil for next 5 years
Source: International Monetary Fund (IMF), 2012
The figure 6.2 (IMF, 2012) projects Brazils growth in GDP for the coming years
2012- 2016. The first reason why GDP will increase in the future is Brazils overall
lack of dependence on its exports at around 13% of its economy as opposed to 40% as
in China. (BBC News, 2012) Secondly, the country is spending a great amount of
money into its infrastructure and transport before the events like FIFA World Cup and
Olympics take place in 2014 and 2016 respectively. Lastly, Brazil has a large domestic
market with a high purchasing power than for instance, China and its population is
rising at 1.17% annually (US State Department, 2012). This points to a higher demand
of goods and services pushing the consumption higher.

6.2 Population and Demographics

Electronic copy available at: http://ssrn.com/abstract=2304895

Figure 6.3 shows the population age/sex pyramid for the population structure of Brazil

Source: United Nations, Department of Economic and Social Affairs, (2011)

The figure 6.3 shows a broad based pyramid with majority of the population lying between the
age group 15-64. This in age terms means that majority of the population is still young although
the average age of the country is rising. According the Central Intelligence Agency (2011) the
median age in Brazil stands at 29.3, more youthful than US and China. The population group of
under 15-year olds is showing a downward trend whereas the rest of the population bears an
upward direction as population marches on towards a 200 million mark.
With the increase in population, many characteristics of the economy will need an adjustment.
For example, Stutz and Warf (2005) argue that the imbalance between the production and
consumption will escalate. This may hinder the sustainability of development. On the other
hand, a report by Wong and Carvahlo (2004) examined the age structure of Brazil until 2050.
Their synopsis was that the population trend for over-65s would likely increase above 20% but
the economically active group of people will also increase until it becomes stationary by 2050.
In other words, even with a rising elder population, the number and proportion of productive
population will be more in comparison. This leads to the question of how this trend in data
would influence other determinants of the economy.
As explained earlier, a greater number of working populations will add to the demographic
bonus Brazil is currently enjoying. However, OECDs economic survey (Galanternick, 2010)
predicted that gender gap would remain for next decade, which is mainly due to women who
work part time to balance their work/home life. This is not a problem if its a personal
preference but should not be dictated by public policy. Another influence this trend has is of
increasing the skill-level of the current population. Krugman and Wells (2006) describe human
capital as one of the three key ingredients of long-run growth for any economy. It can be
inferred that to continue with high levels of growth, Brazil must increase the productivity of its
labour with adequate training. Next, this data will influence the dependent population, which is
increasing and would demand better pension systems. The OECD (2006) predicted that further
reforms in the pension system of private sector workers are unavoidable and that spending on
pensions will be cut. Finally, the demographics also have an effect on products demanded in
domestic market. In Ernst & Youngs (2010) Economic brief for Brazil, it is reported that the
country will bear a greater need for financial products including insurance, savings and
investments along with a quality healthcare-based products.
Electronic copy available at: http://ssrn.com/abstract=2304895

investments along with a quality healthcare-based products.

6.3 Conclusion
This study finds that future GDP growth pattern is positive for Brazil. This is in relation to
countrys strong industrial, agricultural, mining and services sectors. A varied portfolio of
economy with relatively little export dependence means that Brazil has a greater level of control.
The government is keen on spending in infrastructure and transport to accommodate domestic
demand for better living standards in the country. As more Brazilians come out of age and
poverty into the working middle class, there will be a great local demand for products and
services particularly in finance and healthcare. In order to boost its economic capacity, Brazil
first needs to focus on the long run growth by training and developing its workforce.

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