Brazil Emerging from Recession

Robert Hsu, October 02, 2009

Finally, we're beginning to see countries other than China emerge from the worldwide economic slowdown. And I'm not surprised that one of our first contenders is Brazil.

Brazil is headed in the right direction -- even if there will likely be a few bumps along the way. As we discussed recently, Latin American countries are selling more natural resources and other commodities to China, so it makes sense that countries like Brazil are now flush with cash as the Chinese government's stimulus plan boosts demand for these products.

In particular, Brazil and Chile have both benefited greatly from rising Chinese purchases of copper, iron ore and other important minerals used in the country's huge infrastructure spending. This is driving sustainable growth in Latin America.

In addition to a boost in demand for commodities, Brazil's monetary easing is also helping the country's economy recover. This is similar to China's successful loose monetary policy, as the benchmark overnight lending rate in Brazil was cut to its lowest level ever.

And 12-month inflation declined in September to 4.27%, down month-over-month from the 4.34% level in August. Other favorable factors include fairly steady unemployment with a slight increase in earning power, and a rise in manufacturing indexes for the country.

Overall, Brazil's recession was brief. The country's GDP slipped into the negative territory in the 2008 fourth quarter and remained there until the first quarter of 2009, but the second quarter this year set the floor for its resulting growth.

Brazil's GDP for 2009 is expected to be just 0.4%, but should spring back up to an impressive 5.3% in 2010, according to newly revised figures. So far this year, Brazil's Bovespa index has jumped 61% on speculation that Brazil will lead Latin America out of the global economic crisis.

All of these factors have also helped Brazil with their most recent successful 2016 Olympic bid. This will mark the first time the Olympic Games will be held in South America. Looking forward, I'll continue to watch Brazil and Latin America for investments to take advantage of trends there.

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