The Roots of Brazil’s Economic Crisis
Conventional wisdom holds that fiscal and quasi-fiscal profligacy caused the malaise which gripped Brazil's economy after 2013. But the problem is also deeply rooted in weak growth foundations and misguided policy choices.
SÃO PAULO/GENT – When the COVID-19 pandemic hit Brazil’s economy, the country’s per capita income was already in steady decline. It was 7% below its 2013 level in 2019, and further declines were expected in 2020. And yet not long ago, there was considerable optimism regarding the country’s economic prospects.
In 2012, shortly before the start of the economy’s decline, the International Monetary Fund’s Article IV assessment cited “a remarkable social transformation in Brazil, underpinned by macroeconomic stability and rising living standards.” The IMF projected 4-5% annual GDP growth from 2013 onwards, and financial institutions and media outlets shared its optimism.
What happened? It’s not that Brazil doesn’t know how to grow. The Growth Commission identified Brazil as one of the few countries able to maintain high growth rates for more than 25 years after World War II. Between 1950 and 1980, its economy grew at an average annual rate of 7%, with double-digit manufacturing growth. By the end of that period, Brazil’s manufacturing sector was more advanced than those of South Korea or India in terms of product diversification and sophistication.