Monday, June 20, 2011

Taking a Closer Look at Brazilian Growth

Here is another article about Brazil:

"The level of loans overdue by 90 days has risen rapidly in recent months to 6.1 per cent and is expected to reach 8 per cent by the end of December, said Ricardo Loureiro, president of Experian Latin America, the credit rating agency"

Here is the problem I see w/Brazil and many other natural resource exporters. The government is relying on exports (raw materials and agriculture) and credit to grow GDP. But they are neglecting the domestic manufacturing and consumption sectors.

While exports are an old story, credit growth is something new - and it's giving an artificial boost to spending power and making people feel richer - but as many Americans learned this is an illusion. The growth projections are very impressive given the nature of leverage (which is what we are all here to discuss anyway).

But meanwhile the stronger real is making it very hard for Brazilian factories to compete w/foreign imports. We cannot speak about Brazil w/o mentioning China. (America used to be important to Brazil but has lost its place).

It is ironic that Brazil is exporting its resources to China only to have them return in the form of finished goods. Everything from clothes, electronics, tools, and household goods are cheaper to buy than Brazilian produced items. I would not be surprised if Brazilian factories are having financial difficulties. This situation will eventually contribute to what we have in America - cheap imports at the price of lost jobs and bankrupt manufacturers.

The Bottom Line:
For now investors continue to pour money into Brazil b/c there are few alternatives. Growth - both natural resource & credit based - will continue to power the country through the foreseeable future.
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