By the end of 2015, Brazil’s economy may be 8% smaller than it was in the first quarter of 2014, when it last saw growth. GDP per person could be down by a fifth since its peak in 2010. - , 2 January 2016
What has gone wrong with Brazil? And how do their economic and political problems compare with ours? [1]
1. The Brazilian economy is similar to ours in a number of respects. Although it has a surface area seven times ours and a population four times ours, it has almost the same gross domestic product (GDP) in dollar terms per capita as we do, when ruling exchange rates are used. Brazil’s GDP per capita in purchasing power parity terms is between 20% and 25% higher than ours, which means that a dollar goes further in Brazil than in South Africa and that average living standards are higher. Brazil is a high inequality country (with a Gini index of 52.9), though not as unequal as South Africa (Gini index 63.4).
The composition of output is similar, though the shares produced by agriculture and services in Brazil are higher than in South Africa, and the share of industrial output is lower. Gross fixed capital formation as a percentage of GDP (the gross investment rate) is higher in South Africa than in Brazil.
2. South Africa has a higher rank in global competitiveness comparisons. The difference in rank is marked. South Africa is also considered less corrupt than Brazil, but the gap in ranks is smaller than in competitiveness.
3. Brazil has higher government debt in relation to GDP than South Africa, and a higher rate of inflation, but monetary policy is tighter in Brazil. Brazil has a more rigid system of public finance than South Africa, with most of its federal budget ring-fenced by either the constitution or by legislation, as well as more extensive indexation, which creates greater opportunity for inflation to propagate itself. Even so, the increases in public debt in relation to GDP since 2010 (about 15%) have been broadly similar in the two countries. The difference between the short-term interest rate and the inflation rate is currently about 3.5% in Brazil, compared with 0.5% in South Africa. The gap between the short term interest rate and the ten year government bond rate is about 1% in Brazil, but over 3% in South Africa.