An economy needs two things if it wants to grow: savings and investment. Guido Mantega, Brazil’s finance minister knows all about that. He told businessmen last month that investment would rise by a massive 8 per cent in 2013 – if achieved, a huge driver of growth.
After his wildly optimistic and wildly wrong prediction of third quarter GDP, readers may not want to take Mantega too seriously. As illustrated by a chart from the IBGE, Brazil’s statistics institute, the current trend is very much in the wrong direction.
How much buying power is too much? Rising incomes and a strong currency are fattening Brazilians’ wallets, allowing cheap foreign goods and holidays abroad. But new figures show just how deep the phenomenon goes: of the 70 countries covered by the WT0, none is seeing imports grow as quickly as Brazil.
Brazil’s imports rose 43 per cent in September 2010 compared to a year earlier – a bigger increase than in China (24 per cent) and Russia (34 per cent). That’s worrying some in Brazil, who fear the declining competitiveness of local manufacturers and the risks of a current account deficit.
Brazil is gradually changing its image of parties and palm trees. Yet one idea is sticking: that Brazilians – as supposed fun-lovers – would rather spend than save. The country has a savings rate of around 15 per cent of GDP, the lowest of Latin America’s emerging markets.
So Capital Economics implores, in a note published today, that “the over-riding priority for Brazil’s new president must be to raise the level of domestic savings”, especially by ensuring more state revenue goes on investment.
That would means sharp reductions in pensions – unless a foreign source of investment can be found instead.