Arun Panchariya on Brazil: Good News And Bad News

Arun Panchariya  believes the slowdown of the growth rate in the so called BRIC-countries is now clearly visible. Brazil is the latest example. Its gross domestic product expanded 2.7 % in 2011 and only with 0.3 % in the fourth quarter of 2011 compared with the third quarter.

In spite of this slowdown of the growth Brazil has overtaken the UK to become the world’s sixth-largest economy in 2011 according to Centre for Economics and Business Research, the think tank.

Arun says it is significant that Brazil seems to be able to keep a reasonable high growth rate in spite of its economy remains exposed to a strong currency as well as is heavily exposed to export to China which shows signs of slowing down its import. Most independent analysts indicate a growth in 2012 of more than 3 % (and more than 4 % in 2013).

“This underlines the fact that a fundamental shift in the world economy has happened when the shift to the emerging economies even are continuing when some setbacks is visible also in the BRIC-countries. However, there is no reason for complacency regarding the challenges these countries face.,“ Arun Panchariya says.  

For Brazil one of the major challenges is the pension system. For example the pensions for public sector workers cost 2.1 per cent of GDP, but only cover as few as 3m people, according to the Brazilian bank Itaú-Unibanco. From around 10 years from now Brazil will also start to get substantially more pensioners.

How damaging poorly constructed and too generous pension systems are, are well known from the British and South-European crises. However, the fact that it is relatively few that benefits from these pensions in Brazil should make necessary reforms somewhat less difficult in Brazil.

Reforms are on its way. These are essential reforms to secure Brazil a long term success

Mr. Arun Panchariya is specialising in cross border transaction between Asia, Europe and the US