Brazil's Economy Has Hit Bubble Speed

brazil china lula trade

Brazil’s economy just clocked 10% annualized GDP growth over the last six months. Even though the world’s economic rebound is expected to slow in the second half of this year, Brazil is still expected to log a China-like 7% GDP growth for 2010.

That’s the fastest growth Brazil has experienced since 1986. 

Problem is, it’s not sustainable and could create painful side effects:

The Economist:

The problem is that while it may be growing at Chinese speeds, Brazil is not China. Because it still saves and invests too little, most economists think it is restricted to a speed limit of 5% at the most, if it is not to crash. The growth spurt is partly the result of the stimulus measures taken by President Luiz Inácio Lula da Silva’s government when the world financial crisis briefly tipped the country into recession late in 2008. The trouble, say critics, is that much of the extra government spending is turning out to be permanent—and so the economy is starting to resemble a Toyota with the accelerator stuck to the floor.

The strain is showing. Businesses are chasing after scarce skilled labour. Inflation for the 12 months to April reached 5.3%, above the Central Bank’s target of 4.5%. Imports are set to top exports this year, for the first time since 2000, and the current-account deficit should widen to 3% of GDP.

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