Brazil growth: Of lost years, lost decades


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Frustration is building quickly in Brazil. What was supposed to be the beginning of a credit cycle – and a structural improvement in long-term economic growth – is becoming just another false dawn.


Figures from Brazil’s central bank show a deceleration in credit growth in the second quarter of 2019 (compared with the first quarter), which led an exasperated Octavio de Lazari, president of Bradesco, to say that 2019 is “already another lost year” for the economy.

In a meeting with journalists, Lazari struck a pessimistic note: “The second quarter (credit performance) is worse, reflecting the negative GDP growth in the first months of this year.”

Bradesco had already lowered its forecasts to 1.2% GDP growth for the year due to slower-than-expected economic recuperation caused by the government of new president Jair Bolsonaro and its apparent inability to govern. The lack of progress in pensions reform is the touchstone for economic and financial angst – causing a lack of investment from both international and local investors – but the inability to make necessary macro and micro reforms runs deeper.

It is the striking and uncomfortable reality that real income per capita growth has disappointed during the last four decades (or for two generations now)
 - Alberto Ramos, Goldman Sachs

Lazari’s clear annoyance with Brasilia may be because he fears more than one lost year (he says that even if pensions reform passes by September, a recovery won’t happen until 2020).

A report published by Goldman Sachs in May put the repeated disappointment of Brazilian GDP in a broader context. The title was unambiguous: 'Brazil: Two lost decades in forty years – could it be a half century?' 

Lead author Alberto Ramos says recent economic performance “has been an unqualified disappointment” and points out that this is not a recent phenomenon: “It is the striking and uncomfortable reality that real income per capita growth has disappointed during the last four decades (or for two generations now). In fact, in two of the most recent four decades, Brazil will likely see declining real GDP growth per capita: the 1980s, and likely the 2010s. That is, in forty years Brazil will have witnessed two lost decades.”

The mood on Faria Lima has changed remarkably quickly in the last three months. The bemusement (faintly tinged with insult) with which the locals discussed international investors’ reticence to get onboard the bullish Brazil train after the presidential election has been replaced with despondency. And even a type of silent anger – that impeachment crops up in conversations during the first May of the new administration illustrates how dangerous the waters are already for the government.

Danger and desperation. It is sad that there are some things you can always count on in Brazil.