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QE? High level of indebtedness? Risk of default? Not for Brazil

Some elements are common to the adverse economic phase experienced by developed economies such as the USA and the Euro Area (EA) in current days. As a consequence of the attempt of a sharp reduction in public deficit – which is indispensable, given the imminent risk of default of some European Countries – both the USA and the EA have been suffering with historically high unemployment rates. In addition, because both economies has fell in the liquidity trap, Central Banks have been considering to implement non-conventional monetary measures which the outcomes are quite doubtful– such as the Quantitative easing (QE), already adopted by the Federal Reserve – in order to provide further stimulus for credit grant.

Brazil’s current economic situation differs greatly from those faced by developed countries. Unemployment rate has reached its lowest level over the past decades. Since the current public deficit is moderated level (see graph 1), Government has been adopting an aggressive fiscal policy through both increase on expenditures (pulled by a huge amount of investments in infrastructure required for hosting the Football World Cup and the Olympic Games in the following years) and reduction in some of it sources of revenue (recently the government announced a plan for reducing the energy tariff in more than 20%). Besides that, companies which intend to perform long run investments related to social, regional and environmental can, more than ever, have access to subsidized interest rates, through BNDES (“Banco Nacional de Desenvolvimento Econômico e Social”). Another outstanding performance of the Brazilians’s economy can be noticed in soundness and efficiency of the banking system: ratio credit/GDP achieved the historical value of 51% last September, which represents a growth of about 100% in the last 12 years[1]. Undeniably, this is one factor which enabled Brazil’s economy to reach the sixth highest GDP in the world last year.

Graph 1 – Public Deficit/GDP – Brazil


Source: Trading Economics


The fact that Brazil is an emerging economy with potential capability of sustaining a persistent growth does not exempt it of facing adversities. Even though Brazilian economy is far beyond the liquidity trap as the USA and EU – and so, it makes no sense to conceive implementation of QE or any unconventional measure – Central Bank has been establishing a monetary policy in the sense to provide liquidity for the economy. The continuous decrease in the interest rate set by the Central Bank is a measure to reverse the low rates of economic growth of the last quarters caused by the worsening of global crisis.

Additionally to the modest level of economic growth, Brazil has to deal with a historical problem, which is absent in the developed economies here analyzed: inflation. Fueled by the historical levels of interest rate and unemployment, inflation rate has been persistently above 4.5 % yearly, which is the core of inflation target set by the Central Bank since 2005. For next year, though, markets are not confident that inflation can reduce substantially. According to Focus Bulletin[1], in 2013 the price level is predicted to increase in 5.35%.



Source: Brazil’s Central Bank


To sum up, even though Brazil, the USA and EU have been struggling to keep positive rates of economic growth in scenario of worldwide crisis, the challenges which Brazil has to deal with in the close future are distinct to those faced by developed economies. However, the possibility of the Brazilian government of promoting fiscal and monetary stimulus more effective places the country in a more comfortable situation for the next years.



(1)    Boletim Foucs, Brazil’s Central Bank

(2)    Trading Economics

Rubens Moura

[1] Index which computes market expectations, held by Brazil’s Central Bank



Author: studentnovasbe

Master student in Nova Sbe

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