Brazil is World's 6th Largest Economy, Overtaking UK Earlier this Year. Can Brazil Overtake France by 2016? What about BRICs in General?

Earlier this year, Brazil surpassed the United Kingdom as the world's 6th largest economy. Moreover, Brazil's finance minister makes the claim Brazil to Remain Ahead of U.K. Economy and will surpass France by 2016.

Brazil will remain one of the fastest-growing nations in the coming years after overtaking the U.K. this year to become the world’s sixth-largest economy, the country’s Finance Minister Guido Mantega said.

The countries that will grow the most are the emerging markets such as Brazil, China, India and Russia,” Mantega said in a statement published on the finance ministry’s web site, referring to findings by the London-based Center for Economics and Business Research, or CEBR. “The trend is for Brazil to remain one of the world’s top economies.”

The CEBR echoed forecasts earlier this year by the International Monetary Fund showing that Brazil’s $2.5 trillion economy had overtaken the U.K. to become the world’s sixth- largest. The IMF expects Brazil to climb past France to become the fifth-largest economy by 2016.

Is Brazil Fundamentally Different?

This reminds me of forecasts that China will soon overtake the US. China won't and energy is the reason. Is Brazil fundamentally different?

Please consider the American Thinker article Import Brazil's Oil Policy, Not Brazil's Oil

In 1980, Brazil imported 77 percent of its oil. Now it imports 0.0 percent. During that same time period, America increased its oil imports from roughly 30 percent to 70 percent. If Brazil can become completely self-sufficient in oil, why can't America start becoming more self-sufficient?

To answer the question, Brazil can produce relatively cheap energy from sugar cane, something that cannot be said about ethanol from corn.

Fundamentally, if Brazil can produce ethanol cheaper than the US, then the US should indeed import Brazilian ethanol, contrary to the opinion expressed by American Thinker. Furthermore, the US certainly can and should end agricultural tariffs that drive up the price of corn and ethanol.

Let's take a sidetrack for a moment to look at one aspect of US agricultural policy. 

In Support of Hemp

Certainly the US should legalize hemp for softer-than-cotton fibers that use far less water and energy-wasteful fertilizers.

Hemp quickly grows up to 5 metres in height with dense foliage which blocks weed growth. This means herbicides are not needed and the field is weed free for the next crop. Unlike cotton hemp does not have a high water requirement. The hemp plant has a deep tap root system which enables the plant ot take advantage of deep subsoil moisture, thus requiring little or no irrigation.

Anything that can be made from cotton can be made from hemp. Hemp's long fibres give it the strength to create a finished product that is much stronger and more durable than one produced from cotton. Just as hemp can be cultivated instead of trees, it can also be grown in place of cotton, with environmental benefits.

Cotton is one of the most environmentally destructive agricultural crops. In pesticide use in the US alone, is staggering – 125 million kilograms annually. Worldwide, cotton production used 50 percent of the world's pesticides/herbicides. Pesticides are possibly the greatest toxic threat to contaminating our soil, air, water and natural communities because they are often permanent and they bio-accumulate, ie their toxicity increases as they are consumed up the food chain. Many pesticides are known carcinogens, and can also cause immuno-deficiency disorders. Added to this, pesticides have a petroleum base and their excessive use perpetuates our dependency on oil.

Cotton also requires large quantities of fertilisers, growth regulators, general biocides such as methyl bromide, and water. Hemp on the other hand, is one of the most environmentally positive crops that actually leaves the soil enriched. Hemp requires little or no pesticides or herbicides and the extensive and deep root system draws nutrients from deeper soil layers, and when the roots breakdown after harvest they aerate the soil and provide humus. Hemp grows very tall and thick, shading and mulching the ground contributing to a healthy microbial life in the soil.

Why is Hemp illegal? 

Warmongers like to wage endless wars or drugs, so do manufacturers of artificial fibers, so do fertilizer companies, and of course the cotton industry does not want competition either.

OK let's return to Brazil.

Brazil Inflation



When inflation is running comparatively hot, as it is in Brazil, you have a perception of growth that really isn't there. In "real" inflation-adjusted terms, Brazil's growth does not look spectacular.

Brazil Real GDP



Brazil Economy Stalls Q3

Trading Economics reports Brazil Economy Stalls in Q3

Brazil Economy failed to grow from the previous three months for the first time since the first quarter of 2009, as credit curbs, higher borrowing costs and budget cuts checked demand. The GDP grew 2.1 percent from the same period a year ago.

As Europe’s crisis deepens, President Dilma Rousseff’s government is taking steps to reinvigorate the economy with a mix of tax cuts, interest rate reductions and looser bank lending requirements.

Industrial output was the part of the economy hit the hardest by the deepening debt crisis in Europe, posting in September the second-biggest decline since 2008. Production sank 1.9 percent in September and 0.6 percent in October

The central bank’s rate increases in the first half of 2011 aimed to cool down the fastest inflation in six years and an economy that grew at a 7.5 percent pace in 2010, the fastest in two decades. Policy makers began slashing rates in August in the most abrupt reversal in monetary policy since 1999, citing a “substantial deterioration” in the global economy.

Bank lending growth in October slumped to its lowest level since January, the central bank said, as a bank workers’ strike interrupted operations and the interest-rate increases began to work their way through the $2.1 trillion economy, the world’s sixth biggest.

Brazil vs. France

Might Brazil overtake France by 2016?

Given Europe is likely headed for an extremely nasty recession, it might be reasonable to assume that. But what if China slows, Europe slows, and the US slows? Can Brazil put up sufficient internal demand? What about Brazil's inflation rate and the possibility Brazil's central bank is forced to slam on the brakes?

What About BRICs in General?

In a balance-sheet recession and global slowdown (especially a slowdown with defaults), it is the balance-of-trade surplus countries that will take a hit.

Thus, I expect both Germany and China to take a hit, and I have said so many times. Should Brazil be any different? Can energy make the difference?

Might stupidity from politicians outweigh everything else?

The last question is easy enough to answer, even if the other questions aren't. Certainly, poor decisions by politicians may trump everything else. And when it comes to poor economic policies, the EU is in the lead.

However, even if Brazil does grow faster than the UK or France, what growth is Brazil priced for, and how sustainable is it?

I do not have answers to all those questions, nor does anyone else. The situation is far more complex than it appears at first glance. However, the questions do provide a framework for further analysis.

By the way, the above discussion shows the frequently touted "BRIC" grouping (Brazil, Russia, India, China), is fundamentally flawed. Each country must be evaluated individually because of vastly differing energy needs, inflation, and internal politics.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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