Brazilian Economy Struggles to Take off

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Loretta Chao and Rogerio Jelmayer, Brazilian Economy Struggles to Take off. Wall Street Journal, May 5, 2015.
www.wsj.com/articles/brazilian-e ... take-off-1430793921

Quote:

"Economists expect Brazil’s gross domestic product to contract 1.18% this year and growth of just 1% in 2016. * * * All that makes this a fraught time for business in Brazil, which, fueled by a commodities boom, reached 7.6% economic growth in 2010 but has been slowing ever since. * * * 'Brazil’s economy has been like a chicken trying to fly. It takes off, then it falls,' said Bruno Caetano, senior director of the small business association Sebrae in São Paulo.

"many Brazilian manufacturers have taken to opening factories in China or becoming importers, he [Caetano] said. Carlos Tilkian, chief executive of Brazil’s biggest toy maker, Manufatura de Brinquedos Estrela SA, is one such businessman. High costs in Brazil pushed him to outsource manufacturing to China, and 35% of his sales are now outside Brazil, including some in Turkey and Russia. He says the move has helped cushion his company from rising energy costs at home, though Brazil’s weakening currency has offset some of his savings from importing from China. The real has dropped more than 13% against the dollar since the beginning of the year.

Drought in Brazil "has forced electricity generators to rely more heavily on thermal power to conserve water in the nation’s hydroelectric reservoirs, which generate about two-thirds of Brazil’s electricity. To pay for it, utilities recently increased rates nearly 30% in some areas. Companies say they are already feeling the effects. Luis Curi, vice president in Brazil of Chinese auto maker Chery Automobile Co, said the company’s energy bills rose 21% between 2009 and 2014, even before the latest rate increases kicked in. * * * The company recently completed construction of two plants in São Paulo for $530 million. 'Our project was totally planned with a base cost estimate for the first year of operations, and we will have much higher energy costs than projected,' the executive said. 'It’s making me lose sleep.'

My comment: There is no need to read the rest.