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Boom Time for Brazil – The Economic Superpower
August 31, 2011Article by Ray Withers
When Lula Da Silva emerged victorious in the 1984 party leadership elections, his party The Workers’ Party helped re-write the country’s post militarian constitution, a move that proved to be the defining moment in Brazil’s future.
Supported by a strong and vast population, the largest in Latin America, the last 20 years have been an era of change in which many social reforms were introduced to bring morale into the middle and lower class. This included goals to end hunger in Brazil, counter juvenile pregnancy and redistribution of goods to the poor. A program called the Bolsa Family was started and has become the largest social assistance program on food and gas, and conditional on school attendance for children. Having impacted on the growth of the middle and lower class, the county has ensured a continuity of economic growth through relative low volatility on interest rates and exchange rate markets.
Brazil has maintained a well integrated economy that allowed it to prosper through jubilant bursts of progress. Its trade with the U.S has been the backbone of economic growth, being a larger partner than India, Spain and Italy combined.
This period throughout the 1990’s made Brazil the world’s top exporter of tobacco, sugar, beef and iron. During that time, it grew to be the largest market in South America, grossing domestic output over 60% of total output in the area. According to the Financial Times, China is the only country to have received more foreign direct investment among the developing countries between 1988 and 2001.
Although the case, potential wasn’t truly visible until the late 2000’s, before which Brazil’s GDP averaged a modest 2.5%, way below the 10.2% for China,7.8% for South Korea and 5.7% for India. Furthermore, past presidents have each played a big part, from the Program of Targets in the late 50’s, the Economic Miracles in the late 60’s to early 70’s and Fernando Cardoso’s Golden Years of the late 90’s.
Whilst it has become expensive for locals to travel abroad due to the devaluation of the Brazilian Real in September 2008, it has become less expensive for incoming foreigners. The availability of private sector debt has gradually started increasing again, and thus investors will be able to achieve higher returns.
According to Jones Lang LaSalle, many investors will have a lower execution risk due to the increased liquidity. The Central Bank has also been in range with its inflationary targets. This has allowed domestic demand to increase consistently with the rise in the middle class.
Over the last 5 years, Brazil saw 26 million people move into the middle class sector and is expecting more than 16 million to do the same in the next 5 years. Brazil has also become less dependent on mining and is being pushed by what may be termed as “the China Effect”. Banks are also less leveraged and continuously supported by high interest rates.
Property Frontiers share a great interest in the development of Brazil, especially as we are delighted to present the most credible property investment in Brazil, Golden Fields.
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