Brazil: Limited World Cup Effect

Although there are many factors that have contributed to the increase in inflation in Brazil, it boils down to two main reasons: one is the excessive increase in public spending; the second is the wrong assessment of the root causes of inflation, focusing on demand rather than supply.

The main purpose of the economic measures introduced by the Brazilian government is to increase consumer demand, but the reduction of taxes on specific sectors (such as automobiles) and the government’s promotion of expanded consumer credit through banks are the main reasons for inflation in Brazil. Because of these measures, the government needs to have enough resources to make the necessary investments to stimulate the economy. However, the Brazilian government does not have this capability. At present, the contribution of investment to GDP in the Brazilian economy is about 18%, which is much lower than the contribution rate of investment exceeding 25% in China.

It is precisely because of these erroneous assessments and policies that the private sector in Brazil will be very cautious when making investment decisions because government debt growth will increase inflation and reduce economic growth.

Monetary policy is an important part of curbing inflation, but if the government fails to do a good job within the division, including controlling expenditures and promoting investment, then the economy will have to experience the worst-case scenario, that is, economic growth is slowing down while inflation is high.

Next, Brazil will successively host the World Cup and the Olympic Games. There have been many discussions about the positive impact of these activities on the Brazilian economy. However, after the first round of publicity, people have had more concerns.

First, the foreseeable positive impact of these activities is mainly reflected in the construction of infrastructure within the city to improve traffic mobility, and these infrastructures have not yet begun to build.

Secondly, in order to hold events, large stadiums need to be built in most cities. This part of the investment will become a burden for the local government. After the competition, the continued profitability and long-term maintenance of the stadium will become a problem for the local government. - This situation is similar to South Africa.

In the end, the foreseeable increase in consumer spending driven by the event did not offset the reduction in consumption brought about during the holidays.

All previous agencies that have made positive predictions about the matter have made changes to these predictions.

China is Brazil's major commodity supplier. China’s economic growth is very important to Brazil, not the other way around. In the following years, Brazil’s economic growth has been slow and below the world average. This problem has been foreseen by the World Bank and has already emerged in import and export prices. On the other hand, from the perspective of the consumption of Chinese manufactured goods, if this trend in Brazil can be reversed, it will have a positive impact on China. However, we cannot see such a reversal in the next few years.

The forecast for the slowdown in Brazil’s economic growth has already appeared in import and export prices, which means that this forecast has been realized by major trading partners including China. From another perspective, China’s dependence on the Brazilian market is far less than Brazil’s market with China. Therefore, I believe that China will be affected by changes in Brazil’s economic trends. However, China already has a diversified trading partner base, so it does not rely very much on Brazil’s current economic situation. China’s impact will be very small.

Rodriguez Mota Mendes Consultant Wipro Group Director Mendes has extensive experience in the field of international financial services. He was previously responsible for payment systems and e-banking. He also managed the business. Various types of strategic operations, including regulatory issues, development plans, distribution channels, and new market access. He has worked for ELO, a top-ranking company in Brazil's three largest banks (Brazilian Bank, Bradesco Bank, and Central Savings Bank), as well as Brazil's prepaid leader CBSS, and has worked at AT Cole. Nie serves as vice president and is responsible for the financial sector.