Abstract
After a long period of unstable and low economic activity, Brazil achieved a relatively high economic growth with low inflation from 2004 to 2008, when the world scenario was favourable for the Brazilian trade balance. An incomes policy, focused on real increases in the minimum wage along with a credit boom, led to a decade of high consumption growth rates. High levels of consumption and exports, in turn, induced investment and stimulated manufacturing production, despite the real appreciation of the national currency. However, the Great Recession that emerged after the global financial crisis of 2007/2008 brought challenges to the Brazilian economic performance, with unpleasant consequences for the country?s GDP growth. Consumption, investment and exports have decelerated, despite anti-cyclical macroeconomic policies. In this setting, manufacturing production stagnated and GDP growth slowed down substantially, while imports continued rising considerably. The aim of this paper is to provide an explanation to the slowdown of Brazilian growth rates after the Great Recession. The main hypothesis is that consumption was the main source of effective demand in the country since 2003. However, Brazil has not yet been able to sustain manufacturing and economic growth without a more active government policy to stimulate productive investment.
Highlights
After a long period of unstable and low economic activity, Brazil achieved a relatively high economic growth with low inflation from 2004 to 2008, when the world scenario was favourable for the country trade balance due to rising commodity prices and growing external demand
The Great Recession that emerged after the global financial crisis of 2007/2008 brought challenges to the Brazilian economic performance, with unpleasant consequences for the country’s economic growth
The main hypothesis is that consumption was the main source of effective demand in the country from 2003 to the onset of the global financial crisis
Summary
After a long period of unstable and low economic activity, Brazil achieved a relatively high economic growth with low inflation from 2004 to 2008, when the world scenario was favourable for the country trade balance due to rising commodity prices and growing external demand. Successive years of current account surpluses of the balance of payments and substantially increasing capital flows coupled with a dirty floating exchange rate policy allowed the reduction of the public foreign debt and the rise in the country international reserves. This favourable scenario was a precondition for the feasibility of the new policy launch by the left-wing government of Luis Inácio Lula da Silva (Lula) that took office in 2003.
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