Brazilian Economy in a nutshell

Other than Samba, what is in store at the B in BRICS?

There's lot of noise in the financial world about what's happening in Brazil. Wikipedia calls it the 7th largest economy in the world with $2.2trn GDP- (to put in perspective, India is 10th with $2.0trn, USA is the first with $17trn and China 2nd with $10trn). So yes, any impact on such a large economy sure should make noise. So what's happening?

Let's understand what makes up Brazil's economy. A large country covering the most of east-north east portion of South America, with a history of colonial and military rule. The Country has vast abundant natural resources coupled with large supply of labor power. Together, they catapulted the Country to an era of economic growth, becoming one of the highest ranked countries in respect of number of billionaires. Agriculture, mining, manufacturing and service sectors form the crux of the economy.

Strong economic growth made Brazil the economic leader among South American countries. Decades of growth however brought high inflation and since 2011, the Country is battling to reduce its growth to keep inflation in check. Recession of 2008 had impacted the economy, but Brazil was one of the earliest countries to record recovery. High interest rates and strong growth had made Brazil an attractive FDI target, strengthening its currency, which but impacted its export oriented sectors badly.

Now, to current scenario. Dilma roussef heads the Country since 2011 and was recently reelected by a narrow margin in Oct 2014 elections. The Country raised its interest rates to the highest level of 11.75% in December to fight increasing inflation. The economy is growing through a near zero growth, but inflation remains high at 6.7%, well above Government target of 4.5%. Adding to the worry was strengthening of dollar, which made imports expensive and added to rising prices. 

With hike in interest rates normally is associated with reversal of economic growth, it sure makes sense to listen to what happens to Brazilian economy going forward. With news of slowing growth in China, Eurozone not showing any positive signs, US emitting mixed signals but rate hikes pushed further, it will be interesting to see how global economy evolves. Yeah, and falling oil prices too. Where did that come from? Heard of Petrobras? Oil is very important to Brazil's economy as it helps them pay off debts, fund expenses and expand the reach of Petrobras to resources across the world. If low oil prices sustains for a long time, Petrobras would find it hard to invest in infrastructure and exporation and forego cash flows, which will directly impact Brazilian economy. Like Pemex to Mexico, Petrobras is more or less Brazil.