March 31, 2011 / 9:17 PM / 9 years ago

Brazil's growth to mellow as economy matures

SAO PAULO (Reuters) - Brazil’s maturing economy will no longer grow at the breakneck clip of the last decade, settling in at a moderated pace of 4 to 5 percent a year that will still provide ample investment opportunities, economists said.

Buildings are seen in front of the Leblon Beach in Rio de Janeiro February 24, 2011. REUTERS/Ricardo Moraes

Brazil’s “new normal” of economic growth, which follows ten years of solid gains, is a halfway point between its recent past as an economic basket case and its goal of becoming a developed nation.

The situation opens two key entry points for investors seeking a foothold in Brazil — a major upgrade to the country’s woeful infrastructure and expansion of consumer markets as millions of Brazilians join the middle class.

These were the opinions of economists who participated in “The B in BRIC” panel on the economic future of South America’s largest nation, part of the Reuters Latin American Investment Summit in Sao Paulo.

“To grow beyond 5 percent is very difficult for any (middle income) country that is not coming from a war,” said Joaquim Levy, chief strategy officer for Bradesco Asset Management.

“When Brazil was growing at 9, 10 percent, it was in a phase similar to some countries in Asia, which was basically urbanization and a lot of people entering the labor market.”

Brazil’s 2010 expansion of 7.5 percent, its fastest pace in 24 years, will likely be as good as it gets for some time as higher interest rates and tighter public spending cool economic growth to around 4.5 percent.

The country will now have to focus on expanding clogged ports, pothole-filled highways and a patchy rail network that have become a serious constraint for industry expansion and exports.

This presents both a key challenge for the government and an opportunity for portfolio and direct investment in coming years, said Levy, who was treasury secretary in the previous administration of President Luiz Inacio Lula da Silva.


The current government of President Dilma Rousseff needs to advance legislation that can help lower labor costs and reduce the tax burden on companies to help sustain growth and boost investment, said Luiz Fernando Figueiredo, a partner at Maua Sekular Investimentos in Sao Paulo.

“(Brazil’s) tax burden is at the level of a developed country, but without the benefits of a developed country,” said Figueiredo, a former central bank official. “This makes the life of companies very costly, very difficult. It is an issue that must be addressed in the near future.”

Brazil’s mainstay commodities industries ranging from agriculture to mining will remain attractive in the years ahead, but investors should also focus on consumer goods companies that stand to benefit from a continuing expansion of the country’s middle class, which now accounts for more than half the population.

“If you do a forecast for the next five years, you reach the conclusion that at the current rate you’re going to incorporate another 27 million new consumers,” said Ilan Goldfajn, chief economist for Itau Unibanco (ITUB4.SA), Brazil’s largest private-sector bank.

“So this is a new area, domestic consumption,” added Goldfajn, also a former central bank official.

Additional reporting by Todd Benson and Brian Winter, editing by Matthew Lewis

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