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Buttonwood Conference: Are India and Brazil Still Global Growth Engines?


The Economist's Philip Coggan leads the concluding panel of the 5th Annual Buttonwood Gathering.

Moving on to Brazil, Coggan noted South America's largest economy is growing at a rate of 1.6%. Inflation is 5.3%, the current account deficit is 2.7% of the GDP, and the budget deficit is 2.5% of the GDP.

"If we're look at the BRICS as the exemplar of the countries of the future," Coggan said, "that does not sound too encouraging."

Fraga admits it's been a slow year, noting Brazil's trend rate of growth is below India's and China's. He turned to humor to illustrate the circumstances.

"I remember some years ago, hearing from a former colleague of mine at the Bank of Mexico: The good news is we're having the first normal business cycle in Mexico. The bad news is we're in a recession."

Brazil is experiencing a local recession driven by what Fraga sees as too much exuberance in the credit world in the past few years. On top of that is the "global anxiety" being driven by Europe and China.

But not all is bad in Brazil.

"Consumption has been growing at an accelerated pace....We're happy to report that the bottom half of population is actually growing at a much faster rate than the top half. So, you see development, a fantastic decline in the poverty rate, and the development of a lower middle class, which is different from a middle class in places [like the US], but it does consume."

Coggan condensed the difference between the investment opportunities in the two BRICS by explaining: "If India is the play on the emerging middle class...Brazil is seen as the play on commodities."

[Many investors have exposure to the Brazilian economy through iShares MSCI Brazil Index ETF (NYSEARCA:EWZ).]

Fraga, while not denying the role commodities like oil and iron ore play in the country's economic growth, was quick to mention there is much more diversification to the Brazilian economy.

"What we need now is to invest more," Fraga goes on to explain. "We are a low investment country, and this is the main reason why we don't grow. We have major gaps in infrastructure and education, and mobilizing capital and getting the government to be more effective in its roll."

Fraga went on to add that China has been a big consumer of commodities from Brazil, which has afforded Brazil some slack in its balance of payments.

Twitter: @brokawbrokaw
No positions in stocks mentioned.
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