The China Temptation

Jaime Daremblum – Hudson Institute, 8/10/2012

What a difference a year makes.

In August 2011, as the European debt crisis raised fears of another international financial panic, Brazilian officials were bragging about their country’s impressive economic strength and record-low unemployment rate. ”This is the second time that a crisis affects the world,” said President Dilma Rousseff, “and it is the second time that Brazil doesn’t shake.” The perception of Brazil as a booming economy that was insulated from the global turmoil had prompted an influx of foreign businessmen hoping to get rich (or richer). “If the rest of the world is cratering,” a Rio-based American banker told the New York Times, ”this is a good place to be.”

In August 2012, amid a slowdown in China and other developing countries, Brazil is teetering on the brink of recession, largely because of an overvalued currency and sluggish exports. Its economy barely grew at all (0.2 percent) in the first quarter of this year, and its persistent weaknesses have suddenly been magnified. Even the Brazilian services sector, which had been buoying the economy, is now slumping: Its activity index (as measured by the financial giant HSBC) hit a three-year low in July. As for Brazilian industrial production (approximately one-third of the national economy), it has “failed to respond to government stimulus measures and a series of aggressive interest rate cuts,” notes the Wall Street Journal. Writing in the Miami Herald last week, Latin America expert Susan Kaufman Purcell declared that “Brazil’s economic future does not look nearly as bright as its recent past.” Indeed, while unemployment remains relatively low (for now), Brazil is no longer seen as an unstoppable economic powerhouse.

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