São Paulo – Brazil will feel the impact of reduced spending and elevation of United States debt, but it will not be enough to put the national economy in the same situation as that of those in crisis. The main losses should go to Japan, China and the European Union, that have economies more connected to the performance of the North American economy. This may be due to exports, in the case of China, or due to the rate of their currencies as against the dollar, the situation of the EU and Japan.
The economics professor at the Pontifical Catholic University of São Paulo (PUC-SP), Antônio Carlos Alves dos Santos, stated that the law approved on Tuesday (2) by the North American senate and sanctioned by president Barack Obama should not improve the situation of the economy of the United States. The debt ceiling, which was US$ 14.3 trillion, has risen to US$ 15.2 trillion. Spending cuts should reach US$ 917 billion. “They should have increased tax revenues and not cut spending. Interest rates are low and would not be a problem in 2012 and 2013. Reducing spending now is a shot in the foot,” he said.
On the other hand, says Santos, although the Brazilian economy is not going to end up in the same state as the North American one, it will also pay for the US deficit. “The impact here will not be as large, as the growth of Brazil has been sustained by domestic demand. However, if the economy of the United States is not growing, the demand it generates will also not grow,” pointed out Santos. He recalls, for example, that the depreciated dollar is a problem for the North Americans, but one that affects the global economy, as other countries, Brazil among them, find it harder to export.
The greater North American debt ceiling is commonplace, but must be approved by the House of Representatives and Senate. In recent days, Republicans, the majority in the House, and Democrats, who dominate the Senate, came to a deadlock as the Republicans wanted each dollar added to the debt ceiling to be cut from expenses, and they refused higher taxes. They did not want to approve a project that would directly benefit Obama, who has already announced that he will run for re-election in 2012.
The international economics professor at Faculdades Integradas Rio Branco, Carlos Stempniewski, also believes that the project has not solved the US problems. “The volume approved [a debt ceiling of US$ 15.2 trillion] is very small and the total may be reached again by the end of the year,” he said. He is in favour of a high cut in spending, higher taxes and a higher debt ceiling. The law approved on Tuesday does not authorise expansion of taxes.
Stempniewski pointed out that Brazil may suffer less due to the cut in spending than countries that are less dependent on exports to the United States. However, the country will not escape bad results. “Economies that are greatly dependent on exports to the United States, like the European Union, which has an appreciated currency, and China, are going to suffer the impacts. Brazil exports significant volumes of commodities and iron ore to China. It is improbable that companies like Vale, for example, will have as good results as those they have been presenting up to now,” he said. In this respect, he added, it is not worth seeking other trade partners. “In scenery like this, of retraction, there should not be anyone to sell to,” he said.
Stempniewski pointed out, however, that the lower economic activity and consumption that the government of Brazil put in practice in 2010 and 2011 may be beneficial for the country. “Last year Brazil grew 7.5% and the government started working on reducing our growth to 3.5% to 4% this year. This is the GDP that the country can cope with at a moment of crisis without suffering greater consequences. It is better to continue growing at a rate of between 3.5% and 4% in 2011 and 2012 than suffering an abrupt reduction from 7.5% to 2% or 3%, if nothing had been done,” he said.
*Translated by Mark Ament
