Brazil set to become the 7th largest economy of the world

An acceleration of 0.7% in the economic growth towards the end of 2010 clearly indicates that the country is gaining steam. Overall, the country has seen a 7.5% expansion in the economy. Booming investment and buoyant consumer demand were responsible for this modest pickup, which made it difficult for industries to cope with. According to economists, the Brazilian economy grew the fastest in 2010. Capital spending, a gauge of investment, rose 0.7 percent on a quarter-on-quarter basis and a whopping 21.8 percent for all of 2010.

Household consumption has been the pillar of Brazil’s economic boom in recent years. In the past few months alone, it has rose nearly 2.5% and the Brazilians are not going to stop their shopping spree anytime soon. This totally defied predictions of a steep slowdown. On the other hand industrial output and agricultural production contracted, indicating adverse affects of the steadfast Brazilian currency. Tighter public spending and cool domestic demand is expected to simmer a bit.

The 7.5% expansion of 2010 was neck to neck with that of India and China. The Economist Intelligence Unit has predicted that this year Italy would loose its spot to Brazil making this the 7th largest economies of the world with a GDP of US$2 billion.

To cope with inflation and prevent overheating, the government would spike the interest rates and tax breaks on cars and household products. This would bring the expenditure of Brazilians shoppers under control. But Brazil’s maddening bureaucracy, complex tax code and severe infrastructure woes would make it difficult for the government to keep up. The Brazilian economy has oscillated between periods of strong and low economic growth.

Latin American Economist has predicted a lower growth in comparison with lat year. Rate hikes seem to be the only way for the government to stay in control of exorbitant spending of the masses. But, then again investors have also predicted a faster-than-expected growth which leads to higher borrowing costs.

From the way things are going businesses are confident in Brazil’s economic outlook in the coming years. The International Monetary Fund and a slew of politicians are preparing themselves for what they call a turn around of economic events.

Facts on Brazil