Brazilian Bubble had a quick chat about Brazil with Mr. Neil Shearing, the Chief Emerging Markets economist at the London-based consultancy firm Capital Economics. Here is what he had to say about the prospects of the Brazilian economy:

“I agree [with you] that there is still good opportunities in Brazil as the economy develops. The idea that the economy can grow at a sustainable 5-6% (which many propagated this time last year) is a fallacy. But under the current set of policies it should be able to grow by 4% a year or so on average for the next decade. A low savings rate (and correspondingly high dependence on capital inflows) means the path will be bumpy. And there will be problems along the way e.g. local credit bubbles. But we in the UK would be very grateful for bumpy 4% growth over the next decade… If Brazil could up its saving rate I’d be even more optimistic, though there are obvious political barriers to the necessary reforms. So I guess what I’m saying is that I’m below-consensus in the near-term because of the credit cycle, the threat of lower commodity prices and the vulnerability to a fresh spike in investor risk aversion (our global team is forecasting a 15-20% drop in commodities over 12-18m, and our euro-zone team expects that the single currency will split). But beyond this I’m still upbeat on Brazil.”

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