There is no denying the Brazilian economy has struggled recently. According to a recent article, India may soon overtake Brazil as the 7th largest economy in the world. Of course, changes in a country’s economic ranking are not uncommon, but as the Indian economy continues to expand, its economy may in fact stay ranked above Brazil at least for a while.
Luckily, Brazil’s economic outlook for 2015 looks better than it did for 2014. Whereas Brazil’s GDP grew only 0.15% in 2014, it is expected to grow by 0.5% this year. That is only a small step in the right direction, but even a small step means the Brazilian economy is headed in the right direction for 2015 and beyond.
The greater expansion of Brazil’s expected 2015 GDP is thanks in part to new Finance Minister Joaquim Levy, Planning and Budget Minister Nelson Barbosa, and others on their economic team. The Planning and Budget Ministry has ordered the federal government to cut back on spending until a budget law for 2015 has been approved by Congress, a measure that should have taken place before the new year started.
The cutbacks are estimated to save the country R$1.9 billion (approximately $708 million) each month. Although the cuts will not include things such as reduced salaries, unemployment, and retirement, the Brazilian government does plan to save money by being stricter about abuse of unemployment benefits as well as misuse of retirement pension systems. By becoming stricter about certain programs, the government’s hope is to get a better grasp on its spending.
Levy also intends to create a primary surplus (which is an indicator of a government’s ability to save as it is an equation calculating a country’s revenue minus spending) of 1.2% of the GDP. According to Flavio Serrano, an economist at BES Investimento in São Paulo, the decision by the Planning and Budget Ministry to tell the government to cut spending is a step in the right direction. Serrano said: “This says they’re working to reduce spending where they can.”
Only time will tell how Brazil’s economy does in the near future, but with plans now in place to improve it, the economic future does look better than it did a year ago.
