Wisdom.Applied Wednesday: Brazil’s Economy 101

If you remember, the 2014 World Cup was held in Brazil earlier this summer, but did you know Brazil has the largest economy in Latin America and the seventh largest in the world? At least they do measured by their Gross Domestic Product (GDP) which according to the CIA’s World Factbook was $2.19 trillion USD in 2013. It’s not because of soccer or the upcoming Summer Olympics that has Brazil ranking so highly, but due largely to their export-oriented economy. Orange juice, one of the most popular breakfast drinks in America (drank every morning by millions) is often made possible by Brazil. Brazil is the number one exporter of soybeans, supplying 41% of the world’s soybeans and orange juice, 55%. In addition they supply 35% of the world’s raw cane and sugar, as well as iron ore, coffee and oil.

Brazil has large trading partners, including China, Argentina and of course the United States. However, being heavily reliant on the U.S.’s market may be to blame for the only 0.2% growth in the first quarter of 2014. With the U.S. economy contracting, we are importing fewer goods from Brazil. Also an increase in inflation in the U.S. reduced household consumption. This trend is also being observed in Brazil, the spending has decreased and the baseline interest rate was been raised to 11%.

The World Cup both hurt and helped the economy. Protests against the World Cup hurt the economy by slowing down work. Also productivity declined as a result of all the distractions and less work getting done. On the contrary, with the rise in consumption and tourism the World Cup positively affected the commerce and services industries.

With the latest trends showing a similar growth in GDP as last year, it is unlikely Brazil will experience much GDP growth. This is unfortunate, but to be expected. Brazil’s GDP growth was a staggering 7.5% in 2010, while recovering from the global recession of 2008 but since has been unable to achieve a growth rate of just 3%.

Brazil has been able to maintain a trade surplus, exporting more than they import; a feat the U.S. has been unable to accomplish in quite some time. If America could be more self-reliant, both Brazil and the U.S. would see significant GDP growth.

Their economy often goes unnoticed, but Brazil has an impressive export industry, large GDP and is a significant trading partner with the U.S. and many other developed nations. Brazil may not be experiencing excessive GDP growth, but it is important to note their economic presence in the world.

Cover Photo Source: Deymos.HR

Colin is a Junior Executive at SJG. He is pursuing his BS in Economics from Krannert School of Management at Purdue. Outside of the office, Colin enjoys watching movies, hanging with friends and reading books.