## Unleashing Brazil’s Growth

_IMF Blog, November 27, 2013_

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## Bibliographic details
- Authors: Martin Kaufman, Mercedes Garca-Escribano
- Published: November 27, 2013

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### Background and recent performance
- Since the early 2000s, Brazil’s economy has grown at a robust clip, with growth in 2010 reaching 7.5 percent—its strongest in a quarter of a century.
- A key pillar of this success has been sound economic policies and the adoption of far-reaching social programs, which resulted in a substantial decline in poverty.
- In the last couple of years Brazil’s growth slowed down; although other emerging market economies experienced a similar slowdown, the growth outturns in Brazil were particularly disappointing.
- Measures taken to stimulate the economy did not produce a sustained recovery because unleashing sustained growth requires changing the composition of demand towards investment and increasing productivity rather than stimulating domestic demand alone.

### Home-grown woes
- Inadequate infrastructure and imbalances in demand are hampering Brazil’s growth process.
- During 2011-13 private consumption was strongly supported by:
  - very low unemployment,
  - broad gains in real wages (partly owing to large increases in minimum wages),
  - buoyant credit expansion.
- Investment has been disappointingly weak.
- While global uncertainties played a role (especially in 2011), the main factors behind sluggish investment have been home-grown, including the steady loss of competitiveness.

### Restarting growth — IMF staff recommendations
- Solidify Brazil’s macroeconomic policy framework.
- Adopt measures and reforms geared at increasing the economy’s productive potential and improving competitiveness.
- Monetary policy:
  - The tightening of monetary conditions initiated by Brazil’s central bank in April is a step in the right direction; it has helped lower inflation expectations and contain inertia.
- Fiscal policy:
  - Sustained fiscal consolidation through adherence to a fiscal primary surplus of about 3 percent of GDP would:
    - keep domestic demand in check,
    - lower public indebtedness,
    - bolster a recovery in confidence and investment.
- Structural policies:
  - The government’s renewed focus on policies to alleviate constraints on the economy’s productive capacity, in particular infrastructure concessions to the private sector, is welcome.

### Near-term outlook and risks
- Staff projects that Brazil will grow by about 2½ percent this year and next.
  - Although higher than the growth rate of 2012, this performance will keep Brazil below its potential growth.
- Risks to the outlook:
  - The recovery could prove more unbalanced—excessively dependent on consumption—and sluggish.
  - The factors underlying weak investment and supply constraints may be more severe than anticipated.
  - Investor confidence may not be restored.
- Policy guidance if downside risks materialize:
  - The response should not be further demand stimulus, which would:
    - exacerbate domestic demand imbalances,
    - widen the external current account deficit,
    - reignite inflationary pressures,
    - weaken confidence.
- External risks:
  - Stemming from Brazil’s reliance on foreign savings and its highly integrated financial markets.
  - Mitigating factors: the flexible exchange rate, strong monetary policy framework and large holdings of international reserves.

### Reaching full potential — medium-term priorities
- Goal: get the Brazilian economy close to potential growth—currently estimated at about 3½ percent.
- Priority policy actions:
  - Enhance productivity.
  - Step up investment, including in infrastructure.
  - Complement infrastructure efforts with:
    - an overhaul of the minimum wage indexation mechanism,
    - reforms to keep labor costs in check and prevent further erosion in competitiveness,
    - lowering and simplifying taxes,
    - improving business conditions to lower the "custo Brasil".

*IMF blog post by Martin Kaufman and Mercedes García-Escribano, November 27, 2013.*

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## Content in this bundle

- **A arrancada do crescimento no Brasil-- Por Martin Kaufman e Mercedes García-Escribano**
  - [A arrancada do crescimento no Brasil-- Por Martin Kaufman e Mercedes García-Escribano (Markdown version)](/external/lang/portuguese/np/blog/2013/112713p.pdf.md){rel="alternate" type="text/markdown"}
  - [A arrancada do crescimento no Brasil-- Por Martin Kaufman e Mercedes García-Escribano (PDF)](/external/lang/portuguese/np/blog/2013/112713p.pdf){rel="external" type="application/pdf"}

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## References

- [https://www.imf.org/wp-content/uploads/2013/11/brazil-article-iv-nov-2013-1.jpg](https://www.imf.org/wp-content/uploads/2013/11/brazil-article-iv-nov-2013-1.jpg)
- [report](http://www.imf.org/external/pubs/cat/longres.aspx?sk=40999.0)
- [potential growth](http://www.imf.org/external/pubs/cat/longres.aspx?sk=41000.0)

_Source: https://www.imf.org/en/blogs/articles/2013/11/27/unleasing-brazils-growth_