Today I have read a very insightful article from Reuters about Brazil’s success and its upcoming “hangover”. Among its highlights:

“Brazil’s long boom appears to be over. After several dynamic years that saw it earn a reputation among some Western investors as “the near China,” Brazil now looks to be downshifting into a pattern of economic growth of around 3 percent to 4 percent for the foreseeable future. The main culprit is Brazil’s middle-class consumer who powered the expansion of recent years by snapping up cars and TVs at a record pace but now looks to be nearly tapped out.
About two-thirds of major companies on the Bovespa stock index failed to meet earnings expectations in the second quarter, according to a Reuters analysis.
Several economists have recently cut their forecasts, including closely watched Gray Newman of Morgan Stanley who on Wednesday cut his outlook for 2012 growth to 3.5 percent from 4.6 percent. Capital Economics now sees growth as low as 2.5 percent by 2013. In the shorter term, Credit Suisse says Brazil’s economy could even contract during the third quarter, before resuming a slower expansion toward the end of the year.
Hardly anyone foresaw such a heavy hangover from that boom in terms of above-target inflation and one of the world’s most overvalued currencies. The pain may be felt for years.
Many of those C-Class consumers failed to fully understand what they were getting into. Some recently emerged from poverty and were gaining access to credit for the first time.
Among Latin America’s top seven economies, only Venezuela will grow more slowly than Brazil this year, according to the International Monetary Fund’s latest forecasts. In 2012, Brazil will likely come in last place in the region, with growth of just 3.6 percent, according to the IMF.
“Three percent growth is not a disaster, but Brazil could do much better,” said Neil Shearing, an economist for Capital Economics. “It’s going to disappoint a lot of people.”

Full article here

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