BRASILIA – Large emerging economies were hit hard in the past year – particularly in the first half – by the crisis in developed countries, with Europe in recession and the United States staging only a meager recovery. But 2012 will also be remembered as the year when structural changes in the Brazilian economy were consolidated.
The global economic crisis that began in 2008 is similar to the Great Depression of the 1930’s not only in terms of its depth and duration, but also in view of advanced countries’ policy errors and hesitation. It is worrying that European leaders find it so difficult to agree on fiscal adjustment policies that make room for the stimulus measures needed to revive economic growth. Until now, European countries with fiscal leeway have insisted on spending and investment cuts that, together with tax increases, have reduced economic activity and increased unemployment, ultimately compromising tax collection – and thus fiscal consolidation.
In the US, despite a slight improvement, uncertainty lingers. In addition to the risk posed by the “fiscal cliff” in 2013, the main problem remains: the lack of effective counter-cyclical fiscal policies – for example, a public-investment program – to boost economic activity. Instead, the US has placed all of its chips on monetary easing, unleashing what I have called a currency war, in which global investors, chasing higher yields, flood into emerging countries, driving up their exchange rates.
The poor international environment hit Brazil’s economy mainly via foreign trade, aggressive competition in the Brazilian market, and echoes of the negative expectations prevailing in advanced countries.