Brazil: Country Profile

C ountry Report | 14 Dec 2020

Brazil’s economy will contract substantially in 2020. Domestic activity has been affected by
measures taken to contain The Coronavirus (COVID-19) pandemic; although there are signs
that a recovery got underway in quarter 3. Meanwhile, external demand is being stifled by the
global slowdown. Assuming the pandemic is contained, the Brazilian economy should bounce
back in 2021, with real GDP growth of 3.2% in 2021, and annual growth averaging around
2.4% per year in 2025-2027.
KEY POINTS
Brazil’s economy will experience a sizeable recession in 2020. Real GDP increased by 1.1% in
2019 and a fall of 6.5% is expected in 2020.
The real value of private final consumption rose by 1.8% in 2019 and a decrease of 7.3% is
forecast for 2020. Spending has been hampered by quarantines and social distancing.
China is emerging as an especially significant investor. Beijing has recently acquired a
controlling interest in Brazil’s second-busiest port by volume. Other Chinese companies have
started building and bidding for additional ports and railways.
Assuming the pandemic is contained, the Brazilian economy should bounce back in 2021,
after which the recovery is forecast to continue, with real GDP growth of 3.2% in 2021, and
annual growth averaging around 2.4% per year in 2025-2027. However, due to tightening
global financial conditions, placing Brazil on a path of strong and durable economic growth will
require committed pursuit of fiscal consolidation, ambitious structural reforms, and a
strengthening of the financial sector.

Chart 1 Real GDP Growth and Per Capita GDP: 2014-2020

Source: Eurom onitor International from national statistics/Eurostat/O ECD/UN/IMF

Note: Data for 2020 is forecast. GDP per capita are in constant 2019 prices

FACTS
Area
8,358,100 square kilometres

Currency
Real (BRL = 100 centavos)

Location
Brazil, the largest country in South America, occupies some two-thirds of the continent's
entire Atlantic coast. It is bordered by Argentina, Bolivia, Colombia, French Guiana, Guyana,
Paraguay, Peru, Suriname, Uruguay and Venezuela. Much of the country’s climate is tropical
but, in the south, it is temperate.

Capital
Brasilia
GOVERNMENT
Head of State
Jair Bolsonaro (2018)
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Head of Government
Hamilton Mourão (2018)

Ruling Party
The government is formed by a coalition led by the Social Liberal Party (PSL)

Political Structure
Brazil has an executive president elected by popular mandate for a term of four years. He is
answerable to a bicameral National Congress. The Chamber of Deputies has 513 members,
elected for a four-year term by proportional representation. The Federal Senate has 81
members, elected by plurality vote for eight-year terms, with elections every four years for
alternately one-third and two-thirds of the seats.

Last Elections
A general election was held in October 2018. In the election for the presidency, Jair Bolsonaro
was elected, defeating Fernando Haddad. Bolsonaro won in a round run-off with just over
55% of the vote. In congressional elections held at the same time, the Workers Party now
holds 56 seats in the Chamber of Deputies and six seats in the Senate. The Progressistas
Party has 37 seats in the Chamber and six in the Senate and the Social Democratic Party has
34 seats in the Chamber and six seats in the Senate. The remaining seats in both bodies
went to smaller parties. Hamilton Mourão was elected Vice President in the October 2018
elections.

Political Stability and Risks

The minister of health announced a public health emergency due to the Coronavirus (COVID-
19) pandemic in February 2020, before any cases were observed in the country. Soon
afterwards the disease was confirmed to have arrived in Brazil. The country closed its borders
and suspended flights from affected countries. Non-essential businesses and services have
reopened, but schools remain closed. President Bolsonaro has been criticised for not taking
the pandemic seriously; repeatedly dismissing the disease as “a small flu”. He has since been
diagnosed with, and recovered from, COVID-19.
The plight of Petrobras, Brazil’s national oil company, has worsened. Though acknowledged as
a technological leader, the company is regarded as shockingly mismanaged and allegedly
corrupted by politicians. Petrobras’s estimated losses from corruption stand at US$2.1 billion.
The country’s judicial system is dysfunctional and many of its judges are corrupt. Brazil’s
largest cities are some of the most dangerous in the world. Brazil is regarded as the second
largest national market for cocaine in the world.

International Issues
Brazil has a long-standing disagreement with Argentina over the use of waterways for power
generation but keeps its objections muted because both countries are members of Mercosur.
In 2017, the EU won a trade case with WTO against Brazil. The EU claimed that Brazilian
taxes levied on cars and other imports were protectionist. The EU is currently negotiating a
free-trade deal with Brazil, as part of its negotiations with Mercosur countries.

Government Finance
Brazil has traditionally run a budget surplus but the country incurred a deficit equal to 7.2%
of GDP in 2018 and a deficit equal to 6.0% was recorded in 2019. In 2020 a deficit of16.8% is
forecast. In response to COVID-19 the Ministry of Health has requested an additional
R$10 billion (US$2.1 billion) in spending. The government has unveiled a project providing
financial help to those in need as a result of the crisis and announced a stimulus package of
R$147.3 billion (US$29 billion) to help the economy weather the pandemic. Additionally, an
application has been made to the New Development Bank for aid.
Brazil’s public debt totalled R$6,493 billion in 2019, equivalent to 89.5% of GDP. Credit
agencies have downgraded Brazil’s debt to junk status.
Spending on social security and welfare represented 40.5% of government expenditure in
2019 followed by general public services (37.8%).

Chart 2 Public Debt: 2014-2019

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Source: Eurom onitor International

ECONOMY
Economic Structure and Major Industries
Brazil is the world’s largest exporter of beef, orange juice, sugar, coffee and iron ore and
competes with the US to be the world’s biggest soya bean exporter. Almost half these soya
bean exports go to China and the share is rising due to the US-China trade war. Sugar
production and exports are also expected to soar in 2020, in part due to currency
depreciation, this same currency weakness has however, resulted in a fall in the coffee price.
Agriculture employs 12.6% of the workforce.
Manufacturing accounts for 11.0% of GDP and employs 11.0% of the workforce. Brazil’s
biggest manufacturers include producers of automobiles, consumer electronics, computers
and software and heavy industries. The country also has the world’s third-largest commercial
aircraft manufacturer by revenue. The merger of two large pulp producers in 2018 created
one of Brazil's biggest industrial companies and is expected to greatly enhance its
international role. The manufacturing sector is supported by solid gains in domestic demand
and job creation.
Brazil’s service sector makes up 72.7% of GDP. The tourist sector, with an estimated 6.7
million tourist arrivals in 2019, accounts for around 8.1% of total GDP and around 6,900 jobs.
Tourism will be hampered by the COVID-19 travel restrictions in 2020. Inbound tourist and
business receipts fell by 13.3% in 2019 and will fall by 53.2% in 2020. The health of the
banking sector is improving but growth of credit remains sluggish. The retail and wholesale
sectors will be stifled by quarantines and social distancing.
Brazil has an abundance of mineral deposits (for example, bauxite, iron ore, manganese,
chrome, lead, zinc, tungsten and nickel) and is the world’s largest exporter of iron. In 2019,
mining output (in real terms) fell by 3.3%. In 2020, mining activity should recover, following
the normalization of iron ore production, which was affected by the Brumadinho dam accident
in January 2019.

Overview of the Economy

Brazil’s economy has become much more diversified in the past decade. The country still
depends on the production of minerals, farm products and other raw materials, but this
dependence is much less than in the past. Economic success brought significant
improvements in poverty reduction, but inequality remains at relatively high levels for a
middle-income country.
The economy grew briskly in 2010 when Brazil recorded its fastest rate of annual growth in 25
years. The stellar performance was propelled by a big increase in credit and strong domestic
demand. However, rates of growth soon began to fall and the economy experienced its worst
recession in decades in 2015 and 2016. The economic crisis resulted from a fall in commodity
prices which were exacerbated by a political crisis. Higher levels of unemployment, tighter
credit conditions and political turmoil were all part of the problem. These conditions ultimately
undermined the confidence of both consumers and investors.
Brazil’s economy resumed growth in 2017 and 2018 with real GDP rising by 1.3% each year.
Strong exports, an improving labour market and a pickup in investment, supported in part by
lower interest rates, were the main drivers. However, in 2019 growth slipped to 1.1% as
export growth moderated considerably, due to diminishing demand from Argentina, issues in
the mining sector and unfavourable global conditions.

Foreign T rade
The share of exports in GDP has traditionally been rather low. In 2019, exports represented
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just 12.2% of GDP. Exports (in dollar terms) fell by 6.6% in 2019 due diminishing demand from
Argentina. In 2020 exports are forecast to fall by 8.2%, as external demand will be limited due
to the global slowdown caused by the pandemic.
In 2019, the country’s major export markets were China (28.0%), the EU (15.9%) and the
USA (13.3%). Exports of foodstuffs made up 9.3% of the total in 2019.
A decision to restart trade negotiations with the EU and the start of a wide-ranging free-
trade agreement with Mexico are encouraging moves which could boost trade in the medium
term. Local content rules have also been eased, but trade barriers remain high.
Brazil’s current account deficit was 2.7% of GDP in 2019 and it will decrease to 0.3% in 2020.
Brazil has continued to attract sizeable capital inflows, especially foreign direct investment,
which cover the deficit.

Chart 3 Total Foreign Trade: 2014-2020

Source: Eurom onitor International from national statistics/O ECD/IMF

Note: Data for 2020 is forecast.

Economic Prospects
Brazil’s economy will experience a sizeable recession in 2020. Real GDP increased by 1.1% in
2019 and a fall of 6.5% is expected in 2020. Domestic activity has been affected by
measures taken to contain COVID-19; although there are signs that a recovery got underway
in quarter 3. Meanwhile, external demand is being stifled by the global slowdown caused by
the pandemic. Investment will also be limited. High unemployment is falling only slowly, and
newly created jobs are of low quality, including many informal jobs.
Prices rose by 3.7% in 2019 and inflation of 2.8% is expected in 2020. Shrinking economic
activity, prolonged uncertainty, reduced demand and rising precautionary savings leave
Inflation well below the target of 4.0%. The central bank cut its benchmark interest rate to a
record low of 2.0%, as a response to the pandemic.
The real value of private final consumption rose by 1.8% in 2019 and a decrease of 7.3% is
forecast for 2020. Spending has been hampered by quarantines and social distancing.
Brazil’s obsolete infrastructure is a serious challenge to policy makers but it also represents an
important opportunity for investors. China is emerging as an especially significant investor.
Beijing has recently acquired a controlling interest in Brazil’s second-busiest port by volume.
Other Chinese companies have started building and bidding for additional ports and railways.
Unemployment was 12.4% in 2019 and it will fall to 12.1% in 2020. Businesses cut 2.7 million
formal jobs during the previous recession and it is expected that many more jobs will be lost
in 2020 due to firms struggling to weather the crisis. Under the current pension system, the
average retirement age is just 54 years.

Chart 4 Real GDP Growth: 2014-2020

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Source: Eurom onitor International from national statistics/Eurostat/O ECD/UN/IMF
Note: Data for 2020 is forecast

Evaluation of Market Potential

Brazil’s long reliance on a consumption-led growth model – at the expense of investment –
may have run its course. The expenditure rule introduced in 2016 will be violated in 2020,
likely resulting in higher financing costs, a loss of confidence, a recession and associated
lower growth outlooks. In the medium-term officials are expected to make significant
reductions in permanent expenditures in order to comply with the present government’s fiscal
targets.
While some progress has been made on other expenditure items, the deterioration in the fiscal
accounts continues to be driven by rising social security expenditures, most notably old-age
pensions. Therefore, the pension reform, passed by the Senate in October 2019 remains the
key priority to ensure debt sustainability, restore investor confidence, avoid higher financing
costs and reduce the economy’s long-standing dependence on consumption. The World Bank
calculates that this move will add 0.3% to growth of GDP.
Reducing the public sector’s high wage bill is also a key priority, as salary levels exceed
private sector pay in many areas, particularly at the entry level. Efforts to reduce tax
expenditures and credit subsidies for private-sector enterprises, which have created fertile
grounds for corruption without generating clear benefits for either well-being or productivity,
should continue.
Assuming the pandemic is contained, the Brazilian economy should bounce back in 2021, after
which the recovery is forecast to continue, with real GDP growth of 3.2% in 2021, and annual
growth averaging around 2.4% per year in 2025-2027. However, due to tightening global
financial conditions, placing Brazil on a path of strong and durable economic growth will
require committed pursuit of fiscal consolidation, ambitious structural reforms, and a
strengthening of the financial sector. Private consumption will gradually improve as real
income rises. Unemployment should continue to fall but only slowly.
BUSINESS ENVIRONMENT
High taxes and a burdensome bureaucracy are the major reasons for the country’s large
informal economy, which comprises more than two-fifths of GDP. Reforms designed to improve
the poorly functioning labour market and provide more flexibility for the collective bargaining
process could help to reduce informality.
Congress has recently passed a number of reforms to bolster the business climate. They
include improved access to the oil sector for foreign investors, reforms to bankruptcy
procedures, a reduction in bureaucracy and the sale of infrastructure concessions for
airports, roads, electricity and ports.
In 2019, the new pension reform was passed by the Senate. The minimum pension ages will
be increased to 62 years for women and 65 years for men.
To help restore the country’s fiscal health, the government is reintroducing a financial
transactions tax that had been phased out in 2007. The tax should raise an additional US$8
billion. In December 2017, the government also passed a law to freeze budget spending (in
real terms) for up to 20 years. The president has proposed social security (including pensions)
reforms, which could save BRL1 trillion (US$250 million) over 10 years.
ENERGY
Brazil has proven oil reserves of 12.7 billion barrels, the second largest amount in South
America (after Venezuela). Oil production totalled 148 million tonnes of oil equivalent in 2019.
The country currently has 17 refineries but is adding more as demand outstrips supply.
Brazil has 375 billion cubic metres of proven natural gas reserves. Production was 22.6 million
tonnes of oil equivalent in 2019. The government intends to increase natural gas production
further through an expansion of the domestic natural gas transport network, the termination
of flaring at oil-producing facilities, and increasing development of existing reserves.
Brazil is also a large producer and exporter of ethanol. Over half of all cars in the country are
of the flex-fuel variety, meaning that they can run on 100% ethanol or an ethanol-gasoline
mixture.
The government has begun to reorganise Petrobras to reverse a long-standing period of state
interference at the oil producer. One of the first steps is to reduce the company’s debt.
Energy efficiency (defined as GDP per tonne of energy supplies) was about 20% less than the
regional average in 2019. The indicator fell by 1.2% per year in 2014-2019.

Chart 5 Primary Energy Supply (% of total): 2019

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Source: Eurom onitor International from International Energy Association (IEA)

SOCIETY
Population
In 2019, population reached 211 million, an increase of 36.3 million since 2000. The median
age was 33.1 years in 2019, 7.8 years greater than in 2000. Fertility has been falling rapidly
but it is still 1.7 births per female. The downward trend will decelerate in the future, reaching
about 1.6 births per female by 2030. Sterilisation, abortion and programmes for family planning
are driving the decline.
The number of those over 65 years more than doubled in 2000-2019, reaching 19.5 million by
the end of that period. However, this group still accounts for just 9.3% of total population –
a relatively small share compared with most countries. Demographers expect the ageing
process to accelerate in the future, with the share of those over 65 years reaching 13.6% of
total population by 2030.

Chart 6 Age Pyramid in 2019 and 2040

Source: Eurom onitor International from national statistics/UN

Note: Data for 2040 is forecast

Income and Expenditure

In 2019, Brazil’s savings amounted to 12.1% of disposable income and the ratio will increase
to 12.2% of GDP in 2020, as consumers reign in spending and shore up savings due to the
pandemic-related slowdown. This figure is somewhat above the regional average but relative
to Brazil’s capital needs, savings are paltry. The low savings rate makes Brazil especially
dependent on international capital inflows.
Household spending in Brazil exhibits a sharp north-south divide. The Norte and the Nordeste
regions are the poorest, with average household expenditure around half that registered in
Sudeste and Sul. Brazil also has one of the most inequitable distributions of income in the
region.
Consumer expenditure per capita amounted to R$21,604 (US$5,478) in 2019. In 2020, the
indicator will fall by 8.2% in real terms. Leisure and recreation and hotels and catering will be
the fastest-growing categories in 2020-2030.
Brazil accounts for more than a third of the region’s entire consumer market. In the period
2020-2030, total consumer expenditure will grow at an average annual rate of 2.6%. It will
increase by a cumulative value of 29.0% during that period. Total consumer expenditure will
represent 61.2% of GDP in 2020.
Disposable income per capita totalled R$24,857 (US$6,303) in 2019. In real terms, the
indicator will fall by 8.1% in 2020.

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During the period 2020-2030, total disposable income will increase by a cumulative value of
28.6% in real terms – growing at an average annual rate of 2.5%.
More than 80% of those living in rural areas are poverty-ridden. The Nordeste region of Brazil
contains the single largest concentration of rural poverty in Latin America. However, the
“Bolsa Familia” (or Family Allowance) conditional cash transfer programme is credited with
elevating more than 30 million Brazilians out of poverty.

Chart 7 Per Capita Annual Disposable Income, Spending and Savings Ratio: 2014-2020

Source: Eurom onitor International from national statistics/trade sources/O ECD

Note: Data for 2020 is forecast. Per capita incom e and spending are in constant 2019 prices

Statistical Summary
2014 2015 2016 2017 2018 2019
Inflation 6.3 9.0 8.7 3.4 3.7 3.7
(%
change)
Exchange 2.35 3.33 3.49 3.19 3.65 3.94
rate (per
US$)
Lending 32.0 44.0 52.1 46.9 39.1 37.5
rate
GDP (% 0.5 -3.5 -3.3 1.3 1.8 1.4
real
growth)
GDP 5,778,953.0 5,995,787.0 6,269,328.0 6,585,478.9 7,004,141.0 7,407,023.6
(national
currency
millions)
GDP (US$ 2,455,720.6 1,801,677.2 1,795,439.9 2,064,810.5 1,917,163.8 1,878,160.9
millions)
Birth rate 15.0 15.0 14.1 14.3 14.2 14.0
(per '000)
Death rate 6.2 6.2 6.3 6.4 6.4 6.5
(per '000)
No. of 61,927.8 62,940.3 63,901.5 64,812.3 65,675.6 66,497.8
households
('000)
Total 225,100.9 191,134.3 185,235.4 217,739.2 239,889.2 223,998.7
exports
(US$
millions)
Total 229,154.5 171,449.1 137,552.0 150,749.3 181,230.6 177,341.2
imports
(US$
millions)
Urban 172,784.6 174,655.6 176,508.5 178,338.3 180,133.3 181,907.5
population
('000)
Urban 85.2 85.4 85.6 85.8 86.0 86.2
population
(%)
Population 23.0 22.6 22.1 21.8 21.4 21.2
aged 0-14
(%)
Population 69.3 69.4 69.6 69.6 69.6 69.6
aged 15-64
(%)
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 2014 2015 2016 2017 2018 2019
Population 7.7 8.0 8.3 8.6 8.9 9.2
aged 65
(%)
Male 49.2 49.2 49.2 49.2 49.2 49.2
population
(%)
Female 50.8 50.8 50.8 50.8 50.8 50.8
population
(%)
Life 71.1 71.3 71.6 71.8 72.0 72.2
expectancy
male
(years)
Life 78.5 78.7 78.9 79.2 79.4 79.6
expectancy
female
(years)
Infant 14.4 13.8 13.3 12.8 12.4 12.0
mortality
(deaths per
'000 live
births)
Adult 91.7 92.0 92.8 93.1 93.2 93.4
literacy
(%)

Imports and Exports

2020 Share 2020 Share
Major export destinations (%) Major import sources (%)
Exports (fob) to Asia Pacific 49.0 Imports (cif) from Asia Pacific 34.9
Exports (fob) to Europe 18.5 Imports (cif) from Europe 24.4
Exports (fob) to Latin America 13.1 Imports (cif) from North America 17.4
Exports (fob) to North America 11.6 Imports (cif) from Latin America 12.2
Exports (fob) to Africa and the 7.6 Imports (cif) from Other 5.8
Middle East Countries
Exports (fob) to Australasia 0.2 Imports (cif) from Africa and the 4.8
Middle East

© Euromonitor International 2021

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