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High Rates And Politics Put Brazil's Recovery On Hold
(MENAFN- The Rio Times) Key Points
Brazil's economy has slowed sharply in Q3, with growth close to zero as high interest rates squeeze credit and investment.
Jobs remain strong, masking deeper problems in productivity, confidence and long-term growth.
Political noise over public spending and state intervention keeps investors wary and borrowing costs high, limiting the country's potential.
Brazil's economy has hit the brakes. After a strong start to the year, gross domestic product grew only 0.1% in the third quarter compared with the previous three months.
On paper, the country is still growing about 1.8% versus a year ago, but the pace that once impressed investors has faded. For anyone living or investing in Brazil, the main character in this story is not a politician but the interest rate.
To contain stubborn inflation and compensate for doubts about the government's budget discipline, the central bank has pushed the key Selic rate to around 15%, the highest level in nearly two decades.
In a country known for expensive credit even in good times, this feels like slamming the door on new borrowing. You can see the impact in daily life. Families think twice before buying a car or putting a big bill on the credit card.
Brazil's Economy
Companies delay new factories and equipment because loans are costly and rules feel unstable. Unemployment has fallen to its lowest level since Brazil began its modern labor survey, so many people have jobs but little appetite – or ability – to take on fresh debt.
Beneath the headline numbers, Brazil looks like two economies. One is driven by services, a vibrant private sector and big export sectors such as agribusiness and energy.
The other is pulled back by heavy government spending, frequent rule changes and pressure for state-led solutions that scare investors and push risk premiums higher.
For expats and foreigners, the message is simple: Brazil is not collapsing, but it is underperforming its potential.
If fiscal policy became more predictable and the state stopped trying to micromanage the economy, interest rates could fall faster, confidence would improve and the country's natural strengths – from commodities to a large internal market – could translate into more stable, lasting growth.
Brazil's economy has slowed sharply in Q3, with growth close to zero as high interest rates squeeze credit and investment.
Jobs remain strong, masking deeper problems in productivity, confidence and long-term growth.
Political noise over public spending and state intervention keeps investors wary and borrowing costs high, limiting the country's potential.
Brazil's economy has hit the brakes. After a strong start to the year, gross domestic product grew only 0.1% in the third quarter compared with the previous three months.
On paper, the country is still growing about 1.8% versus a year ago, but the pace that once impressed investors has faded. For anyone living or investing in Brazil, the main character in this story is not a politician but the interest rate.
To contain stubborn inflation and compensate for doubts about the government's budget discipline, the central bank has pushed the key Selic rate to around 15%, the highest level in nearly two decades.
In a country known for expensive credit even in good times, this feels like slamming the door on new borrowing. You can see the impact in daily life. Families think twice before buying a car or putting a big bill on the credit card.
Brazil's Economy
Companies delay new factories and equipment because loans are costly and rules feel unstable. Unemployment has fallen to its lowest level since Brazil began its modern labor survey, so many people have jobs but little appetite – or ability – to take on fresh debt.
Beneath the headline numbers, Brazil looks like two economies. One is driven by services, a vibrant private sector and big export sectors such as agribusiness and energy.
The other is pulled back by heavy government spending, frequent rule changes and pressure for state-led solutions that scare investors and push risk premiums higher.
For expats and foreigners, the message is simple: Brazil is not collapsing, but it is underperforming its potential.
If fiscal policy became more predictable and the state stopped trying to micromanage the economy, interest rates could fall faster, confidence would improve and the country's natural strengths – from commodities to a large internal market – could translate into more stable, lasting growth.
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