Brazil experienced a decade of economic and social progress from 2003-2013 in which over 26 million people were lifted out of poverty and inequality was reduced significantly (the Gini Coefficient has fallen 6% in 2013 to 0.54).The income of the bottom 40% of the population grew on average 6.1% (in real terms) between 2002 and 2012, compared to an 3.5% growth in income of the total population. However the reduction in poverty and inequality shows signs of stagnating since 2013.
GDP growth in Brazil has slowed from 4.5% in 2006-10 to 2.1% over 2011-14 and 0.1% in 2014. Inflation remains high, ending 2014 at 6.4%.
To address the current macro imbalances and revitalize growth, the authorities have formulated primary surplus targets for 2015 and 2016 (at 1.2% and 2% of GDP, respectively), compared with a primary deficit of 0.6% and an overall deficit of 6.7% of GDP in 2014. So far, they have announced measures to reduce entitlements, cut discretionary expenditures and reduce Treasury’s support to public banks and the electricity sector, in order to reduce the fiscal deficit.
The Current Account deficit has widened from 2.1% of GDP in 2011 to 4.2% in 2014 reflecting worsening terms of trade and declining exports of manufactured goods. While the deficit remains largely financed by FDI inflows (2.9% of GDP), portfolio flows have been volatile, highlighting vulnerabilities to capital flow reversals. Despite the poor economic performance and the pressures on the external sector, there is no immediate threat of an external crisis as Brazil has $360 billion of reserves (about 17% of GDP), and a solid financial sector.
Due to a prolonged drought, there is risk of water and electricity rationing in parts of the country, which would have consequences for economic activity and prices, posing risks to real incomes, especially those of the poor.
Brazil’s medium-term outlook will depend on the success of the current adjustment and the adoption of further growth-enhancing reforms. To achieve higher growth in the medium-term, raising productivity and competitiveness is the crucial challenge for Brazil. With the growth drivers over the past decade — credit-fuelled consumption, labor expansion and the commodity boom — receding, growth will need to be based on higher investment and gains in productivity.
Brazil experiences extreme regional differences, especially in social indicators such as health, infant mortality and nutrition. The richer South and Southeast regions enjoy much better indicators than the North and Northeast.
Despite the achievements in poverty reduction over the last decade, inequality remains at relatively high levels for a middle income country. After having reached universal coverage in primary education, Brazil is now struggling to improve the quality and outcomes of the system, especially at the basic and secondary levels.
There has been enormous progress in decreasing deforestation of the rain forest and other sensitive biomes, but the country faces important development challenges in combining the benefits of agricultural growth, environmental protection and the sustainable development.
As one of the leading nations on climate negotiations, Brazil has committed voluntarily to reducing its greenhouse gas emissions by between 36.1% and 38.9% until 2020 and should achieve this goal early.