Economists Just Can’t Downgrade Brazil Fast Enough

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Clouds rolling in on Copacabana beach

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Global markets are tanking, and Brazil is going down with them fast and hard, FT’s beyondbrics reports.On Monday Morgan Stanley downgraded its outlook, lowering GDP growth expectations from 4.0% to 3.7%. Next year’s GDP numbers were lowered from 4.6% to 3.5%.

On the same day, Brazil’s own central bank announced that forecasts for 2011 growth fell for the third week in a row to a median 3.84%.

The thing is, despite the growing power of Brazilian consumers and the rising middle class, Brazil’s economy is still very dependent on raw materials (like soybeans and iron ore, to name two). Thus, it’s growth is very dependant on global commodity prices — 47% of Brazil’s exports are considered “basic products.”

Morgan Stanley has been warning that this was going to be a problem for a while. The term is “growth mismatch.” It means that added consumer power doesn’t necessarily mean that GDP will grown in kind.

Via FT beyondbrics: “We thought people were misunderstanding the mismatch between very robust consumer demand and sluggish domestic production,” says grey Newman, the economist for Latin America at the bank. “Yes demand is there, but it is being met by imported products.”

Bottom line: If global commodity demand stalls (let’s say, China slows down), Brazil is in serious trouble.