A burst of Chinese-level growth cannot be sustained. But it hints at Brazil’s new-found strength, and is perfectly timed for the presidential election

I just don't understand... If Brazil is going through a crisis, it is bad. If Brazil is growing, it is bad too... What should Brazil do to finaly satisfy The Economist?

This magazine is too quick in its conclusion. It says that Brazil will “crash” if it keeps growing at this rhythm. However, there is no mention to two key elements that contribute to this conjuncture: raising level of investment/GDP (although still below China) and, more importantly, idle productive capacity. About this last one, its normal to have a growth surge in the aftermath of a crisis, as economic agents are now using idle capacity. The article simply ignore it.

Additionally, although inflation is 5.3%, it is still within the the upper limit of 6,5%/year of the inflation targeting system. Again, TE omit this.

However, they have a point when they say that Lula’s government exaggerated in civil servants' salary raise. That was a wrong policy. However, this affects much more Brasilia (the capital city), where federal civil servants are concentrated, than the whole country. Brasilia is experiencing a huge asset bubble, but the effect of federal government swelled payroll is unlikely to spill over to national aggregate demand. Again, no mention to this in the article.

This magazine should refine a bit more it’s analysis about Brazil (and Latin America). It ought to be less ‘selective’ about the information they choose to show and to omit. Or maybe it should be more critical about the macroeconomic models that they use to (mis)judge Brazil, as the reliance on these models are now knocking down the Anglo-Saxon/European world.

Mr Linhares, what Mr. Nelson is expressing is his frustration with the negative point of view constantly reported in this journal. Who reads this publication has the felling that only the Anglo countries do the right thing, specially the US and the UK. One has to be very well informed and have a very wide view to see the hole where the US and the UK are in and the advantages Brazil has in relation to them. But you can’t be so naive to expect TE to say so.

One needs to understand that don’t matter what, this journal will always be critical of non-Anglo countries. Is part of the game. On the other hand, Brazil has to change the way it manages its internal affairs. The political elite has our industrialists held hostage by the lack of infrastructure. Is by keeping economic development strangled by bottlenecks that the political elite who seat in Brazilia ensure any development will comply with their political control in the regions of the country and ultimately help them to achieve their personal goals.

Take Jose Sarney, for instance. Go to Maranhao, the poorest state in the Federation, and try to develop a project without his participation. You will be driven out of the state, dead or alive.

No wonder Maranhao is the poorest state in the Federation.

By all means, Brazil is a great country, the problem is that it’s political elite make it a monumental managerial failure.
What Lula is doing in Brazil is exactly the same thing any politician would do in any country in the world. But we can’t expect TE to be supportive of it in a non-Anglo country. This publication here would never EVER tell anyone that PT is a Xerox copy of New Labour.

I’m NOT a Lula supporter; I think he is a crock and a liar who has capitalised on his antecessor good work and attributed to himself every success originated from sound economic policies that have been developed for the last 20 years. I’ll also never forgive him for reinforcing the Brazilian mentality that the State will rescue the poor out of misery.

I hope the opposition win the coming election.

"I just don't understand... If Brazil is going through a crisis, it is bad. If Brazil is growing, it is bad too... What should Brazil do to finaly satisfy The Economist?"

Perhaps engage into sustainable growth, growth led by the market, companies, consumers, exports, instead of artificial *stimulus* growth of injecting money into the economy? Perhaps cut down the size of the government expenses to 60% what it is? That would put Brazil on the road to prosperity.

My generation of Brazilians (I'm 44 yo) tended to show a demeaning attitude towards our national identity simply because we grew up during two "lost decades" (the 80's and 90's). I was 10 years old when I first heard about our everlasting economic crisis and the hardships "imposed" by the IMF; the situation did not start changing before I was 25 or so.

In the last 10 years I have noticed a change in our self-esteem, which, in principle, is a very good thing (I have seen the same type of behavior during my trips to China). However, I have the feeling that an important part of our educated population is loosing its ability to accept constructive criticism, as Mr. JJSD says below, blinded by "nationalistic feelings". Hey people, wake up, we are not (and may never be) in a position to lecture other countries about economic (let alone social) development. The last three governments have been doing a decent job but, like every politician, they are far from being perfect and there is still a LOT to be done. We used to be part of the underdogs, the ever promising "country of the future"; it is therefore natural that some of us now feel some sort of revanchist sentiment towards the "western" world. Frankly, I think it is well too early to scream victory from a higher moral ground.

I am not an economist but I agree with TE's analysis since I have read similar opinions from a large range of analysts belonging to different schools of economic thinking. But I will use the words of my (uneducated) grandmother's to describe my opinion: "All this economic improvement is a good thing but, until I see every Brazilian with all his teeth in his mouth I will not be impressed."

Just 16 years ago Brazil's economy was in shambles with inflation running wild, a huge and unmanageable foreign debt, a lot to catch up in infrastructure, poor investment, etc. Now just because the country's has overcome part of its old problems with still a lot of catching up to do Brazilians feel they can lecture the "Anglo" world how to manage their economies. This magazine has carried out an honest and objective ECONOMIC analysis of Brazil's future economic prospects based on age-old economic tenants that have been around forever and will be for a a good time. Spend more than you earn, it will take its tool on you. No super optmistic nationalist feeling can discredit that. The "Anglo" world has failed exactly because they emulated policies Brazil has enforced forever, to wit: excessive gorvernment intervention, spend-like-there's-no-tomorrow sprees, huge taxation, insatiable public jobs creation, Keynesian economic policies (spend your way out of crisis), etc. Brazil's not teaching anyone good lessons, much to the contrary. If things don't change we might be in Greece's shoes sooner than you think.

I am a foreigner currently living in Brazil, and I can say that from my own observations I have to agree with those of The Economist. My perception is that nationalistic feelings are blinding Brazilians about what is really going on in economic terms. Nothing can ever be TOO good.

And here comes another article attacking Lula. Better attack huge bailouts in Your countries not Brasil's economy which is of of the most sound economies in the world!

It's kind of funny, nowadays, who Knows how to control the economy?
I think its not Greece, or U.S., or Europe, in general.
The point is, few countries have the capacity to control and management of the economy such as Brazil.
Speaking in controlling inflation and not to mention Brazil as a pioneer and world reference is ignorance.
Its tot perfect, I know, but then to admit that the economy could collapse sounds meaningless.

This time I desagree with some of the comments posted in here. I wrote a very harsh comment regarding this magazine's first article about the Iran deal as it was increadible biased against Brazil. But now I tend to agree with those who criticize the over current expenditures within the State. Don't get me wrong, I do support this government and most of its policies. However, there are things that must be takled in order to keep on growing the economy and distributing the wealth, for instance:

1) The Brazilian State must be able to increase its investment capacity so that the gross fixed capital formation rises to some 25% or more of the GDP (it is currently at less then 20%, in China it is over 40%). This way we would be able to increase growth to 6% or over (depending on the proporcion of gfcf in relation to the gdp) without incurring in an inflationary spirral as a result of offer X demand inbalace.

2) We must takle the imbalance between retirements and revenues(mostly in the public sector retirements). There are a few exemples of how much the current retirement scheme undermines our ability to invest: in Brazil we spend some 11,5% of gdp in retirents, while Belgium and Spain spend some 12,5%. The differece is that Belgium and Spain have some 22% of their population over 60 years, while Brazil's population over 60 y. is some 9% (Data from Confederação Nacional da Indústria).

3) We also need to increase our private savings in order to make room for more investment. That could partially be done if employees were allowed to increse their contribution to public and private retirement plans. There are many smart ideas here but this is not the place to be citing them...

4) After these 3 priorities, from my point of view, we must come up with better ideas on education, besides this time increasing our expenses as a proporcion of GDP (maybe double the amount currently at 4% of gdp).

5) Health, Tax and labour would come next...

It's easier to criticize The Economist magazine than our government and why not, ourselves.

Now «gente» you just have to win the world championship to have it all. Brazil is making it perfect, as far as the world economy goes. It has defeated every pessimistic forecast and done very well indeed. I remember when The Economist was saying that China was growing to fast and it was going to crash. Crash, yes, it did, against us, and in a very bombastic way. And still growing after all those years…
I remember some years ago when Lula was fighting for the Presidency and many fine people were terrified by the arrival of PT in the Planalto. I wasn’t, because I knew that Brazil’s social imbalances were in dire need of repair. A country cannot work properly and function if one big part of its population is excluded from affluence. Now Brazil needs to get it right on what concerns government expenditure. Well, let’s hope the austere Mr. Serra gets it right.
With a better division of the cake, a sounder and healthier public sector, a educated young population and if it is eager to fight corruption and political organized crime, Brazil will be what it is waiting to be for so many years: the stable and prosperous powerhouse of south America. I think it is a very enviable position.
My only fear is that by the time I retire, Rio will be to expensive for me...

I enjoy Brazil and Brazilians. I worked there in 1976-80 and it was growing gangbusters. Citibank made 20% of its world profits in Brazil. Then in 1982 we lost it all when Brazil could not pay its debts and had to reschedule. This recent nationalistic self-confidence is exciting. But if you cannot take criticism and learn to improve, oh dear. The Economist is only stating the true facts.

If Brazil's GDP is now growing at about 8-9% per annum, and its potential GDP growth is about 5-6% p.a., then obviously there are excess internal demand and inflationary pressures. No wonder it is starting to show an external commercial deficit as well. Basic macroeconomics, my dear readers... It would be wise, then, if Brazil's government and central bank start diminishing expansionry fiscal and monetary policies. 2 + 2 = 4, not 5 nor 3. Así de simple.

Mr. Marx, that's besides the point and, still, I wasn't too far off. Was I?

Federal goverment should hault public employee's salaries' increase and concentrate public spending on infraestructure. That's what the article is all about, and it's awful right. As for the unfairly low wages that still remain on public sector, the school teachers' turn out to be priority number one.

Brazil has today the results from what was recommended by IMF in the 80´s and 90´s.
We followed the recipe and worked. Some more improvements should be done to increase state´s efficiency and reduce the extra costs imposed to companies in terms of logistics, security, legal system and direct taxes.
It will be a long way to fix all this but I don´t believe in surprises about our economy.
In fact it´s a good time to invest there like Americans, Chinese, Canadians, French, Japanese and Spanish companies are doing in various industries.
In the worst year of the world economic downturn the "brazilian" auto industry (Ford, GM, VW, Fiat, Renault, Toyota, Honda, Mercedes,...) beat the historical production record is a strong message to all critics.
This year alone 4.4 billion will be invested by this industry.
Brazil could be not such heaven to live in but either all those multinationals companies gone crazy or something in not quite right with "economists" forecasts.

To Fabio C,

Just a correction: Piaui and not Maranhão is the poorest state in the country (in a gdp per capta basis). Maranhão, is the second poorer.

Luchillo, that's what the miopic Brazilian political elite keep doing and the Anglos keep "advising" us to do. The unswer is clear in Marx poster.

Are you Argentinian?

I'm an economist, and fortunately, the forecasts of economists are always wrong. Today, economists are the prophets of terror; they only make forecasts of bad things. The correct forecast for the Brazil economy is that the country works hard to be the world's fourth largest economy by 2016.