São Paulo – Brazil is prepared to defend itself from the consequences of the crisis, but should not navigate calm seas while Italy, Spain, Greece and the United States fight to solve their fiscal and political problems. The global unsettlement should have an effect on Brazilian exports. Among the products exported, manufactured ones should be the most affected.
According to the chief economist of the Institute for Studies in Aid of Industrial Development (Iedi), Rogério Cesar de Souza, Europe is suffering a crisis due to countries that are finding it hard to grow, generate income and finance themselves. As the domestic market in these nations is more fragile, the way out would be investment in exports to make them more competitive.
On the other side of the Atlantic, the United States is not living a problem to finance itself. However, it cannot foster growth of its economy without depreciating the dollar. Therefore, North American producers must export at low prices and make foreign sales by other countries, among them Brazil, more difficult.
“We may return to seeing the same scenery as last year’s, with our currency appreciating and our losing markets. With matters like the ‘Brazil cost’ (high tax burden and precarious infrastructure, among others), it is expensive to produce here. Our exports may suffer with the crisis while facing greater competition with European products and the depreciation of the dollar. In this scenery, industry should be penalized the most,” said Souza.
The chief economist at the Iedi also warns that exports of commodities, which represent the greatest share of what Brazil sells abroad, may be less profitable from now on. “Investors are racing to buy United States bonds, which has already resulted in a reduction in commodity prices. The lower prices affect our trade balance, which is positive mainly due to the appreciation of commodities,” said Souza.
To Cristina Helena de Mello, macroeconomics professor of the Pontifical Catholic University of São Paulo (PUC-SP), the US may not, at the moment, generate revenues with greater taxes. That was prohibited in Congress talks last week for negotiation of expansion of the debt ceiling. The solution for the North Americans is to cut spending, which has a direct influence in Gross Domestic Product (GDP) growth.
“With lower economic activity, US imports drop. They are the main Brazilian partners and should import less. Many countries that export to them and import from us will also reduce the rhythm of purchases,” she observed. Cristina says that Brazil may compensate this loss with domestic consumption.
Celso Grisi, a professor at the Economics and Business Administration College of the University of São Paulo (FEA-USP) and director at Fractal Research Institute, said that Brazilian exports should suffer a “reasonable” impact as there will be lower growth of the global economy and lower imports by the United States and Europe. With this, China will export less to those nations and will have a reduction in economic activity. China will also buy less.
If the scenery is not favourable, Brazil has instruments to help endure the crisis better. “Brazil may reduce its tax burden with a mini tax reform. The country is already alleviating payroll in some cases, but may work on a labour reform to make the legislation more flexible. It may reduce the interest rate and, thus, appreciate the national currency. It may also return to an expanded credit policy,” said Grisi.
He recalled that among the manufactured product sectors, the first to suffer with the crisis should be the auto industry. Base equipment and parts producers may also feel a reduction in exports.
*Translated by Mark Ament
