After Brazil’s economy grew by an amazing rate of 7.5 percent in 2010 its economy is now slowing down.  Brazil was projected to have a gross domestic product of 3.7 in 2011 that has since been lowered to 3.5 percent. The reason for this is because of a recent recession in industry due to the lack of global demand.  Industrial production has dropped two quarters in a row now and for the third time in five months because of the Brazil’s strong currency.  The strong currency makes it hard for domestic industries in Brazil to beat the prices of cheap imports from China and other Asian countries.  The automotive industry is being hit the hardest by the economic slowdown.  According to Golman’s Mr Ramos the slowdown in growth is due to falling prices and capital inflows, “If commodity prices come down and if global sentiment remains weak, we could see those capital inflows starting to soften and commodity prices starting to soften – those have been very important drivers of performance in Brazil,” Mr Ramos said and he says that if the growth rate falls below 3 percent the government will have to get involved.  He believes that the government will have to create more aggressive monetary easing and possibly fiscal measures.  Even though the government hasn’t taken these measure yet doesn’t mean it hasn’t done anything.  The president ,Dilma Rousseff, has given tax cuts to certain manufacturers and raised prices on imports to decline the real to the dollar.  This has worked so far as the real has declined 18 percent against the dollar but this still has not yet helped these companies.  Another thing that the government has done is raised tax on cars with foreign made parts by 30 percentage points.  This was done to protect car makers from an increase in imports from Asia.  Despite the slowdown of the economy companies are still expanding in Brazil.  Nissan Motor Co. and Renault SA are both planning on building another factory in Brazil.  The only thing that they are worried about is currency appreciation.  They are being helped out by the government trying to weaken the real and by central bank president , Alexandre Tombini, who has cut the Selic rate by 50 basis points which should lower borrowing costs in the near future.  Another company that plans on expanding in Brazil is John Deere.  John Deere plans on building two new factories in Brazil to meet the growing demand in South America.  The building of these new factories is expected to cost $180 million.  The steps that the government in Brazil is taking and the building of all these new factories in Brazil should help produce more jobs and should slowly help out the slowing economy.

Take a look at these links to learn more

http://brazilportal.wordpress.com/2011/10/05/brazil-industrial-output-falls-for-third-time-in-five-months/

http://qctimes.com/business/deere-to-expand-in-brazil-with-new-factories/article_f17a7a6a-edca-11e0-9e8c-001cc4c002e0.html

 

2011 GDP for Brazil