According to Time Magazine, Brazil is a very unbalanced economy and a bubble of hot money. I have been saying that for more than a year.
The imbalances that their bubble is creating:
Hotel rooms in Rio de Janeiro cost more than in the south of France. Restaurants in São Paulo are pricier than in Paris. Bellinis are cheaper in Venice. Apartments in the chic Leblon area of Rio sell for more than Fifth Avenue co-ops with views of Central Park. But often there is something amiss when a middle-income country has such a rich currency. The real’s gross overvaluation is a symptom of a seriously imbalanced economy.”
The Big Government:
Government spending is not only too high, at 35% of the economy — compared with an average of 25% in other emerging markets — but also too soft. Most of it goes to generous pension and welfare schemes rather than to building roads or improving schools. Brazil ranks poorly on measures of educational achievement like average years of schooling, coming in lower than most other middle-income countries.”
Foreign investors are blind:
“Foreign investors gloss over these shortcomings and focus on the stability Brazil has achieved since the turmoil of the ’80s and ’90s, as well as on the commodity windfall. From iron ore to coffee, Brazil is already one of the largest exporters of commodities, and following major deepwater oil discoveries in recent years, some experts have called it the next Saudi Arabia.
But any strength taken too far becomes a weakness. The commodity hype is drawing in too much foreign money, driving up the value of the real to a level that hurts other industries. Brazilians are spending a record amount on imports, so the current-account balance, which measures income from trade and services, is deep in the red. If commodity prices decline, then that hole becomes unmanageable.”
Full article here.

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