Brazilians will soon vote in a run-off election to choose their next president, who will have to make some tough economic decisions. The economic slowdown in Brazil is part of a trend that has been steadily worsening for several years and is largely caused by falling commodity export levels. The Brazilian central bank predicts the economy will grow by 0.7 percent in 2014, the slowest yearly increase since 2009. And despite falling demand abroad, Brazil will have no choice but to continue relying on commodity exports as a primary driver for economic growth.
After the global financial crisis began, China's demand for commodities shielded Brazil from having to rely on its increasingly uncompetitive manufacturing sector as a source of revenue. Indeed, Brazil exported 23.6 percent of its $226 billion in exports for 2013 to China. Of the exports to China, nearly 83 percent were of commodities, including soybeans, iron ore and oil. This reliance on China aided Brazil's continuing economic growth in the aftermath of recession but left it vulnerable to fluctuations in demand.
Since 2011, the rate of Chinese imports from Brazil has declined, likely because of slowing demand for certain commodities in China. Exports of soybeans, iron ore and oil to China rose by only $1.5 billion from 2011 to 2013. Meanwhile, Brazilian exports during the first eight months of the year decreased by nearly $2 billion from their 2013 levels and will likely continue to slow in 2014.
The next Brazilian president will have to carry out necessary economic adjustments in the coming years, and the measures could increase the risk of social unrest. Brazil saw widespread demonstrations in June 2013, many of which were spurred by ongoing grievances such as the rising cost of living and political corruption. With increasingly difficult decisions on the horizon, the next president will probably have to address the difficult task of crafting economic adjustments designed to improve the economy without alienating constituents.
