The Brazilian economy: A brief update (2018)

“Map of Brazil” Miller Atlas (1519)

Meanwhile … back in Brazil and now many months after Batman got cross with Robin because of his poor grip on economics and philosophy of science, the question still remains about exactly how bad “the worst economic crisis in Brazil’s history,” which began in 2014 and perhaps ended in 2016, actually was or is. There are many articles on the “Brazilian Economic Crisis of 2014” and it often seems the rhetoric is a bit hyperbolic.

An example of an excellent and interest article that I think fits this characterization is the BBC News article “What’s gone wrong with the Brazilian economy?” It’s not that the facts cited in the articles are wrong; it’s the combination of selective presentation of facts and (at least) semi-hyperbolic rhetoric. But ok, we all like to read interesting rather than boring articles; so writers must be at least a bit inflammatory.

Is the financial media rhetoric on Brazil hyperbolic? Read on and you can decide for yourself …

A short-term economic focus is not too meaningful

One way that the financial media inflames peoples’ interests and passions is to be selective about the time span of the presented facts and analysis. In the case of Brazil, the primary method seems to be to focus on (i) reporting a short time span of negative facts combined with (ii) hyperbolic rhetoric (e.g., “The worst economic crisis in Brazil’s history”). This really is–I must say–a bit odd: For at least the last 25-30 years there has been a continuous drone of criticism of the short-term focus of business executives:

Deadly Disease of Management: Emphasis on Short-term Profits
Why CEOs Should Push Back Against Short-Termism
How to Stop Short-Term Thinking at America’s Companies

If we criticize business executives–of individual companies–for excessively short-term focus, how in God’s name could we reasonably expect entire countries and economies to benefit from focusing on either quarter-to-quarter or even year-to-year performance? It generally defies common sense, economic theory, and management theory, which is a powerful combination.

This all suggests that we need to take the long-view to meaningfully evaluate what is really happening in the Brazilian economy. I previously addressed Brazil’s economy from a long-term perspective in an (incomplete) series of articles:

Brazil’s economy (Part 1): A crisis?
Brazil’s economy (Part 2): Employment
Brazil’s economy (Part 3): Consumption
Brazil’s economy (Part 4): Government spending

But that was a few years ago and we now have more data on Brazil’s actual “economic crisis” performance. I will present just the most basic aggregate economic data–gross domestic product (GDP)–on Brazil’s performance from 1990 through 2018, and defer presentation of other more detailed data and analysis to future articles.

Brazil’s long-term GDP growth is similar to the USA

Consider the following graphs showing the indexed GDP for Brazil, Mexico, Canada, the USA, and Germany. As I discuss in my previous article, the only meaningful way to measure GDP in a way that is comparable across countries and time is based on what is known as purchasing power parity using constant monetary units:

Now, please recall the phrase “the worst economic crisis in Brazil’s history,” and look carefully at the above graph. I think the only reasonable conclusion is that, if this is the worst economic crisis in Brazil’s history, then Brazil actually has demonstrated amazing economic performance; especially considering the very serious problems any developing nation faces (e.g., under-developed infrastructure, etc.).

Brazil’s GDP per capita growth is lagging recently

Brazil’s economic performance in recent years has, of course, not been perfect. Consider the following graph measuring real economic growth on a per capita (per citizen) basis:

Here we can see the primary deficiency in Brazil’s economic growth in recent years: On a per capita basis it is seriously lagging that of the US and Germany in recent years. But to be fair, is it really appropriate to compare per capita GDP growth in Brazil to two of the most modernized, developed economies in the world; i.e., the US and Germany? Probably not. But even so, Brazil’s per capita economic growth is substantially equal to that of Canada (!) and better than that of Mexico.

The reasonable view on Brazil’s economic growth

I think we can now answer the question of whether the rhetoric of the financial media on Brazil’s economy is hyperbolic: Yes. Yes, it is. And once again, I think it’s fairly reasonable to conclude from the actual economic data that Brazil’s economic performance–although certainly not perfect–is in fact quite consistent with any reasonable expectation of a developing economy; particularly considering Brazil was governed by a military dictatorship between 1964 and 1985, had almost unfathomable economic difficulties in the 1980s and 1990s, and is still, by choice, a largely closed economy.

People in Brazil and all over the world are always wondering if and when Brazil will finally realize it’s economic potential. My personal opinion is that Brazil is certainly realizing it’s economic potential; it’s just that the realization is coming at a somewhat slower rate than people would prefer. But as perhaps my wisest friend, a Brazilian, once said to me “But we never get what we want. That’s just the way life is.” Why so? Of course, it’s because wants are infinite and often irrational.

In short, I think Brazil’s overall economic performance is basically excellent, but that–at the same time–there’s always room for improvement; both in Brazil and all over the world. Although I tend towards optimism–not pessimism–I think it’s best to be realistic about Brazil; and from a realistic perspective, Brazil is both doing reasonably well and has a bright future.

MMc
São Paulo

Caveats.  Please note: (i) views presented above are my own and do not reflect those of others; (ii) like anyone, I’m not infallible and am responsible for any errors; (iii) I greatly appreciate being informed of any significant errors in facts, logic, or inferences and am happy to give credit to anyone doing so; (iv) the above article is subject to revision and correction; and, (v) the article cannot be construed as investment or financial advice and is intended merely for educational purposes.  MMc