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Momentum
A grown-man GDP
Marcos Gouvêa de Souza - CEO, GS&MD - Gouvêa de Souza
In Brazil, the big buzz continues to be on the GDP performance last year, strictly in-line with the expectations. So far, no
news. The new facts are the natural slow down this year and, much more important, the forecasts for the next ten years.
One of the most relevant changes in Brazil in the recent past has been the migration from a short-term analysis for a
long-term scenario approach, due to a more stable economy that sets emerging countries apart from more mature ones.
And Brazil seems to have crossed this bridge for good.
The recently released data show the country on the verge to become the world’s seventh largest economy, overcoming
Italy if considering GDP in dollars. When using the Purchase Power Party (PPP) concept, this position has been already held.
Some facts deserve to be highlighted in this recent performance.
The first one is that the strong 7.5% rise in 2010 was leveraged by an almost zero rise in 2009, thus resuming the
economic expansion that had been going on in the last years, whose foundations have been built in the last 20 years.
One must also acknowledge domestic spending has become the main engine of the economic development from 2004
on and all lead us to believe it may continue to be that way in the next years. In 2010 the family spending rose 7% and retail,
the most benefitted segment, went up 10.7%. The Brazilian retail segment had the world’s fourth-largest growth, only behind
India, China and Chile, but is the most improving country when considering its retail maturity level in the 2005-2009 period.
A factor leveraging the strong GDP growth has been the consistent economy formalization process, driven in the last
years by the increasing tax burden and, specially, by the resources used by the government to avoid tax evasion, making
companies migrate to the formal side of the market and bringing to official data what was hidden.
It is alarming, however, that while GDP rose 7.5%, taxes rose 12.5%, specially importing taxes (42%). In the next years,
taxes collected are expected to rise, as retailers and industries become formal and expand.
Observing, however, this scenario in a broader view, and putting under the right perspective the more cautious
observations made by economists and analysts, what lies ahead is a very positive trend that comes from a self-feeding
growth effect.
New investments, from domestic and foreign companies, in the industry, retail and services segments, tend to ensure
the expansion of jobs and salaries, opening room to the expansion of credit, today accounting for only 45% of the GDP. It
all adding to the increasing consumer confidence and boosting domestic spending.
The slow recovery of mature countries and the fastest expansion of emerging countries may open room to increase
exports, with positive effects on industries and segments who have faced difficult times today.
More important, however, than looking back to understand the performance of GDP in the last year is to forecast the
next ten years and understand the historical opportunity that has opened to the country, as the changes that have occurred
(and will continue to) lead Brazil structurally to another level. This changes requires a completely different mindset so one
can understand the market, consumption, society and businesses.
There are, however, some unsolved problems, as the need to increase investments in infrastructure, as it is the main
restrain to an even stronger expansion of the economy; and the reduction of public spending, that would lead to interest
rates, specially for investments, comparable to mature countries.
While these last issues are not solved, Brazil will continue to run to the future, but chained to the past.