The May/June issue of Foreign Affairs has an insightful analysis about the slowdown in China and what it could mean for Brazil’s economy.
As most are aware, China has built an export oriented machine over the last decade that has overtaken Japan and become only second to the U.S. as one of the largest economies in the world. China has seen compounded yearly GDP growth in excess of 7% since 1999. During that time as China flooded world markets with inexpensive products ranging from textiles to electronics it has had to satisfy a voracious appetite for raw resources. Correspondingly, commodity prices have been on a tear and markets with an abundance of those raw resources has benefited. Brazil is one of those countries that has benefited from China’s demand for raw resources.
Brazil’s former president, Luiz Inácio Lula da Silva, who was recently succeeded by his Chief of Staff, Dilma Rousseff, has been largely attributed with helping Brazil become one of the largest economies in the world and bringing millions of Brazilians out of poverty and into the middle class. During his tenure Lula’s administration focused heavily on social programs like the Bolsa Familia, which provided conditional direct cash transfers to the poor in exchange for activities that included keeping kids in school and vaccinated. It is estimated that poverty in Brazil fell 27% during Lula’s first term. In 2008 Brazil became a net creditor for the first time in it’s history after relying on foreign loans for decades. Exports were a significant contributor to this and with China, as well as most of the global economy, experiencing a slowdown Brazil’s economy may experience mounting headwinds.
It will be worthwhile keeping an eye on Brazil’s exports. I’ll try to get data on Brazil’s exports for the last ten years to provide some charts.