Brazil, like other Emerging Markets, has been living in “bubbly” territories for some time. For the last 10 years, we have been noticing that it’s been gettting more and more expensive to buy anything in Brazil. A great article from the Financial Times depicts this situation situation perfectly.
From the FT:
“Inevitably, this combination of a strong currency, foreign investor euphoria, increased consumption and bottlenecks that stifle the ability to respond to the growing demand make everything more expensive. Indeed, while Brazil remains a very poor nation, it is currently one of the most expensive in the world. Housing prices in Rio de Janeiro and São Paulo have nearly doubled since 2008. Renting offices in Rio is becoming more expensive than New York, while the salaries of executives in São Paulo are higher than London. Inflation is rising so quickly that Dilma Rousseff has declared it her main concert as president.
Take all this together, and it begins to look not just overheated, but worryingly like the beginnings of a bubble. And while Brazil’s progress and potential are not an illusion, its economy still rests on unsustainable features. Neither credit nor public spending can keep growing at their current pace. Former president Luiz Inácio Lula da Silva postponed a number of important structural reforms, such as raising Brazil’s retirement ages – currently among the lowest in the world. State infrastructure investment is also a meagre 1.5 per cent, compared with 12 per cent in China. All of this explains why the Brazilian economy is overheating, even though it is only likely to grow at a reasonable 4.5 per cent this year. The sobering fact remains that decrepit infrastructure makes Chinese-style growth of 10 per cent or higher unattainable. For now, the priority must be simply to stabilise the economy, before the bubble expands.”