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Brazil recently became the sixth biggest economy in the world but in the second half of last year GDP growth plummeted.Now, in his latest note Jim O’Neill, chairman of Goldman Sachs Asset Management who coined the term BRIC, says he still expects a positive surprise from Brazil in 2012 and 2013, but is not as happy with some of the policies that Brazil is pursuing:
“It is clear that the government is too keen to use spending as a permanent tool to try and boost growth. As I remarked, Brazil wants to be more like China, as China wants to be less like China. This is opposite of the way Brazilian government policies should be moving. Like all other BRIC and N11 [Next Eleven] economies, copying South Korea and trying to get policies to achieve Growth Environment Scores (GES) like them should be a clear goal of policy. If Brazil could move more down this path, with its 190 million people, it could easily achieve 5-6 pct trend growth.”
O’Neill also says there is a strong belief among Brazil’s investor base that the central bank is shifting its focus away from inflation, which he says would be a major concern for him if true. But he says it is more likely that Brazil’s central bank is just implementing a more flexible inflation target approach.
Concerns about Brazil’s economy are understandably of some importance, as O’Neill says that the four BRIC nations together create the equivalent of another Italy every 18 months.
For now he doesn’t think Europe’s woes will dominate the global markets:
“Europe doesn’t run the world economy or markets, and the background for comparing events with 2011 is now different… If all the BRIC countries have problems (and last year at this time, the BRIC policymakers were all tightening), then the consequences of Europe’s troubled times are indeed more concerning.”