Brazil Central Bank cuts GDP Growth Forecast (Personal WrtieUp)

Article Summary

The article listed above is regarding the slowing economy of Brazil. Brazil's Central Bank cut its GDP growth forecast for 2012 from 1.6 percent to one percent, confirming slowdown in Latin America's biggest economy. From 3.5 percent early this year to 2.5 percent in June, then down to 1.6 percent in September and to one percent this month, it is clearly evident that Brazil’s economy is coming to a desperate halt, and if not harnessed, then into a recessionary period. But the problem that lies within Brazil’s economy is not one that can easily be adjusted, it is not as simple as implementing different fiscal and monetary policies, as the change must not be temporary, for the problem is rather structural. The problem lies within the core structure of Brazil’s economy. In order to boost GDP, you need certain structural conditions such as labour and infrastructure. Labour in Brazil is highly expensive making the production of goods and services within the nation a highly regarded hassle. Moreover, the economy mainly lacks infrastructure. But to fix such a demanding change, the government is highly intervening. They are adapting the nation’s economic laws, increasing government spending, lowering interest rates, decreasing taxes, and investing into the nation’s infrastructure such as building new airports and roads, all in all to help stimulate the economic growth. With such a slowing economy, the government must implement such expansionary policies to help stimulate the economy and increase the progression rate of the nation’s GDP growth, putting it back to its previous 7.5% growth in 2010.

Relation to the Course

This article has much connection and content related to the course material as described in the following:

GDP: The main topic covered within this article is the decreasing size of the Brazilian Market. Though the Brazilian market is the largest market in Latin America, it is halting in expansion, and near a recessionary period.  The approach to measure a nations market size as discussed in the course is by calculating their GDP. GDP is the total dollar value of all the goods and services produced within a country in a set period of time. But in order to produce such goods one needs employment and infrastructure which is the structural flaw of the Brazilian market. As goods and services aren’t being produced, the Brazilian market is collapsing in size, and halting in expansion, only growing at an annual rate of 0.9% in GDP. With such a great decline in the GDP of Brazil, living standards are also becoming a large concern in such a nation of poverty.

Fiscal and Monetary Policies: With the market contracting and halting in expansion, the Brazilian government is practicing expansionary fiscal and monetary policies to help stimulate the economy and push for rapid expansion. The government has begun to lower tax and interest rates, along with increasing money supply, ultimately stimulating personal consumption for the ever growing population. Moreover, in order to fix the infrastructure structural issue, they have increased government spending by building more roads, schools, hospitals, airports, ultimately stimulating the halting economy to further expansion. By adjusting the fiscal and monetary policies to expansionary modes, the government is striving to stimulate the Brazilian economy.

Unemployment: Unemployment is becoming of a large concern in the Brazilian market. At first the employment costs in Brazil was very cheap, therefore a lot of foreign investments grew and manufacturing and other production industries to utilize the cheap labor costs. But as the economy underwent rapid progression and growth, the nation began to develop, and the living standards increased for the population. But by becoming a developed nation, standards increase, and so does their demand for wages. Now a days, wages have become too expensive in Brazil, resulting to the withdrawal of foreign investments. This has led to a high rate of unemployment in Brazil, leading the nation back into a recessionary economy, marking millions in poverty. As discussed in class, high rates of unemployment have a catastrophic effect on the nation, as the market is crashing, the GDP is coming to a halt, and living standards are decreasing.

Comments

The reason I selected to do this article was because of my deep and growing concern into the Brazilian market as a personal investment decision. I have become ever interested and personally attached with the Brazilian market since the Summer London Olympic Games. Knowing that the next nation to hold such a venue was to be Brazil, I began to do further research into their economy. From my own personal research, I knew that the Olympic games brings vast profit to the host nation, as it vastly boosts the hosts economy and market.  For example the London Olympic games were expected to boost Britain’s market by an overwhelming £16.5bn  (a 1.5% GDP boost). This is however not to mention the new infrastructure  invested into such as the venues and housing. With such a great boost in the economy, it came to my understanding that if the games were to be held in Brazil, and the market was to grow by the same past experience, then I should make personal investments into their economy to utilize such an opportunity. But in order to investment, I had to become more educated on the matter personally. For such an event like this that is expected to boost the market, one must also take into consideration the capacity of the market itself. The Sydney, Athens, and Beijing games didn’t bring much economic profit as the nations were already at their economic peak at the time, therefore I had to do thorough research into the Brazilian market. Month after month I research the Brazilian market to become more informed of the matter their market performance. That is why I read this article, to help better educate myself so I can make a more informed decision as to whether or not I should invest into their market.