The Economy of Brazil in 2023 - Industry & Market Trends

Brazil is the largest country in South America, with a population of over 214 million, making it the fifth largest in terms of area and the sixth largest in terms of population in the world. Brazil has a diverse landscape, and its lush forested areas are famous, including the Amazon rainforest in the north, which is the largest in the world, with the country possessing about 60% of the Amazon. However, in recent years, these forests are gradually shrinking. According to data from the Brazilian National Institute of Space Research, as of two months before 2022, the area of deforestation in the Amazon region had reached 430 square kilometers, more than double the average level of the past decade.

In addition to supporting its GDP through industries such as rubber and timber, Brazil is also the world’s largest exporter of beef and soybeans. This dependence on exports has led to illegal deforestation and even suspected intentional ignition of wildfires to create more pastures and farms.

Like other South American countries, Brazil was colonized by other countries until its independence in 1822. The only difference is that its colonial power was the Portuguese Empire, while most other South American regions were colonized by Spain. From independence until 1985, the country underwent several centuries of populist and military government rule, before adopting a constitution in 1988 and defining itself as a democratic federal republic. Following this, Brazil benefited from the transfer of industrial activities to low-cost countries in the 1990s, and also attracted engineers and technical personnel with technical skills. With foreign investment, better education, and increased domestic consumption, Brazil became an important participant in the global economy, and was seen as one of the world’s fastest-growing emerging markets and a contributor to global growth.

Such strong growth saw Brazil, along with Russia, India, China, and South Africa, referred to as the BRICS, which are emerging economies with extremely fast economic growth, and by 2050 it was expected to surpass developed economies. However, the economic performance of the past decade showed that Brazil no longer belongs to the BRICS. The country, once one of the fastest-growing economies in the world, has been in a state of severe decline due to long-term corruption, political turmoil, and poor management. Just in 2015 and 2016, this led to a contraction in GDP of nearly 7%.

With the global inflation rate rising, Brazil, which is export-oriented with commodities, has seen an improvement in its economic outlook due to the rise in prices of agricultural products and raw materials. At the same time, as an oil-exporting country, it has benefited from the continuously rising prices of oil and energy, leading to a new high in exports, and foreign investment is expected to increase. However, this is not entirely good news, as families’ actual incomes will be eroded by rising inflation, and although the central bank has increased the interest rate from 2.0% in 2020 to 11.75% to curb inflation, it is very likely that the central bank will further raise interest rates in the future, which means that Brazil may once again face the challenge of entering a contraction, and even growth may freeze in 2023.

The recent investigations into the insurrection by extremist supporters of former president Jair Bolsonaro presents challenges for the new president Luiz Inácio Lula da Silva as he begins his term. The Economic Intelligence Unit (EIU) predicts that Lula will form a broad coalition in congress for support, but he will face strong opposition from right-wing parties. Lula’s policies are expected to be more fiscally expansionary and less market-oriented compared to Bolsonaro’s policies. Reforms to sales taxes and the income tax code will be a priority in the first year. The aim to increase social spending will result in a new fiscal framework, leading to a public debt/GDP ratio above 85% by 2026.