Economics

Economic Fact Files: Brazil

8 Min Read

It’s famous for its rainforests, carnival, beautiful beaches, football and one of the seven wonders of the world (amongst many other things).

But what about the economy itself? Let’s take a dive into one of the most beautiful countries on Earth.

About Brazil

Officially known as the Federative Republic of Brazil, Brazil is the biggest country in South America and is in the top five largest countries in the world. Its location borders all the other countries in South America, except for Ecuador and Chile.

The federation is made up of the Federal District and the union of the 26 states, which are divided into over 5,500 municipalities. The Federal District is split into 31 administrative regions and is where the capital Brasilia is located.

The country has a population of 208 million people, meaning it has the fifth largest population on Earth. The main spoken language is Portuguese, although the country is considered to be one of the most multicultural.

Brazil's Economy

According to the IMF, Brazil’s GDP is around USD 2 trillion, making it the 8th largest economy in the world. However, GDP per capita is only around USD 10,000 which ranks at 65th in the world.

The services sector makes up between 60 to 70% or Brazil’s GDP, followed by the industrial sector at around 30% and agriculture at around 5%.

Brazil is the 22nd largest export economy in the world and had a balance of trade surplus in 2018 of around $60 billion.

The country’s biggest export destinations are China (at 22%), the US (at 12.5%) and Argentina (at 8%) with exports including oilseeds, mineral fuels (including oil), machinery (including computers), meat, iron and steel

Brazil is a major producer of oranges, accounting for the majority of orange juice produced worldwide. It also produces refined and raw sugar products, which accounts for 25% of the world’s supply.

Brazil’s agricultural exports have increased significantly recently, thanks to the trade issues between the US and China. Soybeans are the US’s most valuable farm export, with the majority of it being exported to China as the world’s largest soybean importers. Due to a 25% tariff on US soybeans, there has been an increase in soybean purchases from Brazil instead.

Brazil’s soybean exports to China increased 22% over a 9 month period, compared to the previous year. Because of the extra demand for Brazilian soy, their prices have also increased and they are getting over triple the amount per bushel than they were the previous year.

According to figures at the end of 2018, around 80% of all Brazil’s soybean exports now go to China.

Production in Brazil is made easy thanks to cheap labour and easily accessible raw materials.

Let’s take a look at what living conditions are like in the country.

Living Standards in Brazil

There is a large gap between the rich and poor in Brazil, with 11.18% of the population living below the poverty line (according to figures in 2018). The richest 10% of the population earn 42.7% of the nation’s income, compared to the poorest 34% of the population, who earn just 1.2% of it. A lot of the poorer population lives in slums that are located in the metropolitan areas and areas of neglected land.

A major cause of the housing problems in Brazil is the rise in population, partly as a result of immigration. The housing deficit is currently around 7 million, with some people even building their own shelters which are below living standard. These settlements are known as favelas.

The law in Brazil states that someone must be over the age of 16 to work, but, in these poorer areas, children are sent to work as young as 10 years old to provide for their family.

Crime in Brazil is also seen as a big problem, with high rates of robberies, kidnappings and murders. There have been issues with corrupt policing, but this is something the government has been trying to combat.

The country recently elected a new far-right president, Jair Bolsonaro. Among his supporters, there are high expectations, although not all the population shares that opinion, with some seeing him as a bit extreme and potentially divisive.

The Future for Brazil

Brazil has had to face some tough economic conditions, including a two-year recession in 2015 and 2016 when the economy shrank by almost 7%. There was more optimism as Bolsonaro assumed office at the start of the year, which boosted the stock market, thanks to promises he had made and was expected to deliver on.

However, as things stand, the economy appears to be contracting again and risks of another technical recession are rising. In terms of inflation, Brazil’s annual CPI hit 4.9% in April 2019, which is the highest it’s been in over 2 years. The central bank’s target for the end of 2019 is 4.25%.

For a country that was once on the list of BRIC (Brazil, Russia, India and China) nations that were set to overtake developed economies by the middle of this century, it’s a long road back to significant growth. But there are hopes that it will get there by next year. Regardless, in many ways, this is still one of the most important and treasured countries in the world.