A report by me was written about the misconception of bank rates and the effect bestowed on inflation and living conditions, last year. This blog begs the question of how is the economy in Brazil, and whether it’s good or bad news!
The performance of the Brazilian economy rose in 2023. The gross domestic product (GDP) accumulated growth of 2.9%, as well which maintained the pace observed in 2022. Inflation for 2022 was 5.79%, but slowed down in 2023 to 4.62%. It was also observed that the behavior of food prices and monetary policy, which imposed high interest rates on the economy in 2023, were factors that helped inflation remain under control.
According to the National Agency of 29th July, 2024 the yearly goal was to keep inflation to under 3% with a tolerance range of 1.5% percentage points above or below. How they arrive at that number defies even the best economist because we had seen a reduction in (2022 - 5.79%) to (2023 – 4.62%). If we use basic mathematics and inflation continues to fall a more accurate assessment would be around 3.45% as its base.
However, in 2021 inflation weighed on Brazilians' pockets, and on the economy (Source G1). The widespread increase in prices was the result of a combination of negative factors: the rise in the dollar, the global appreciation of oil prices, and drought, which led to crop failures in the countryside and an increase in energy prices.
It's really rather classical to think that this year alone the dollar exchange rate has spiked back to what it was in 2021. Does that mean inflation is heading up?
Drought in Brazil is “the most intense in history”, according to a CNN report of last week. The president of the Brazilian Institute of the Environment and Renewable Natural Resources (IBAMA), Rodrigo Agostinho, claimed that the “hot spot is now in the south of the Amazon” and highlighted that the region is facing the worst drought in the last 44 years. Does that mean electricity prices will increase and subsequently inflation is heading up again?
In England the Bank of England known as the Central Bank in Brazil controls the base interest rate which is currently 5%. In Brazil there has been several cuts, but currently it is 10.5%. The political monetary committee known as COPOM have indicated that there shouldn’t be any further reductions in the short term. On one hand, keeping the base interest rate high curbs inflation, but at the same time its objective is to control the populations overspending.
Now the interesting point over any scenario concerning the country’s wellbeing is that the central bank control the monopoly of base rate percentage which for me as a foreigner living in Brazil since the 80s begs the question, “By curbing spending what is its real objective?” My belief is that the banks realize people will end up borrowing money, as their need or greed for an asset such as car, motorcycle, jet ski, or home improvements, repair cost, or whatever. Personally, I like to call it Legal Theft by banking sector.
If Brazilians cannot afford new assets because they lack funding then they need to borrow money, right? The problem, as I see it is the added interest rates to borrow money. A quick check to see what I would likely pay to borrow R$25.700.00 over 48 monthly payments came out to around R$1.290,00 per month. Add that up, and you’ll get the shock of your life because you will pay more than double. The worst of it is that some people don’t have a choice because they are desperate.
“The Brazilian GDP expanded by 1.4% from the previous quarter in the three months ending June of 2024, gaining traction following the upwardly revised 1% expansion in the first quarter, and well above the market consensus of a 0.9% increase. The result extended the stronger momentum for the Brazilian economy following the muted momentum in the end of 2023, strengthening the argument for hawks in the Brazilian central bank to deliver a rate hike. Private consumption rose by 1.3% amid the elevated level of government transfers in the year, aligned with the 1.3% growth in government expenditure. In the meantime, gross fixed capital formation rose by 2.1%. On the other hand, net foreign demand contributed negatively to the GDP, as imports soared by 7.6%, while lower prices for key Brazilian commodities drove exports to rise a softer 1.4%. From the corresponding period of the previous year, the Brazilian GDP rose by 3.3% in the second quarter of the year. source: Instituto Brasileiro de Geografia e Estatística (IBGE).
In other words, exports have increased while agriculture is partly responsible for GDP growth having risen from 13754.97 BRL million to 30477.00 BRL million by March 2024. It seems to me that more people are eating Brazilian foods worldwide! The GDP value of Brazil represents 2.06 percent of the world economy. As individuals the GDP value per capita person is extremely low in Brazil.
I’ve never studied economics and cannot be classified as an expert on the subject. Nevertheless, instead of the Central Bank working alongside banks in Brazil, and making sure they have the most profitable business, they should be representing the main stream of people and defending the population to keep interest down, make sales increase, and distinctly help businesses in general increase productivity, lessen unemployment, and make the per capita GDP value increase.
People do not have the same opportunity, and yes, the richer generally get richer whilst the poor generally get poorer. This is the same scenario for all of us. As individuals we have to make choices that best serve us to prosper.
If you are not there yet, don’t worry, be happy and keep pushing forward!
Take care!
Prof. Carl Boniface
Vocabulary builder:
Classical (adj) = traditional, standard, conventional, orthodox, usual, typical, established, old, (ant) new
Hawks (n) = warmongers, aggressors, belligerents, jingoists, (ant) peacemakers
Hike (n) = trek, ramble, walk, climb (emphasis on increase)
Capita (n) = heads (basically used to identify how much vale per person)
The word capita is the plural of the Latin word caput, which means "head". The phrase "per capita" is derived from capita and is used to mean "per person" or "by heads". It's a common term in statistical research and social sciences, such as economic indicators, government statistics, and built environment studies.
Nevertheless (adv) = yet, but, however, nonetheless, still, though. On the other hand. All the same, even so
Distinctly (adv) = definitely, clearly, noticeably, markedly, particularly, specifically, conspicuously, manifestly, patently, plainly, (ant) vaguely
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