City National Bank
talk with us:
(800) 773-7100

Brazil Needs a Hat Trick

June 13, 2014

David Atkinson
Senior Vice President City National Foreign Exchange Manager

Print Friendly


The world stage has shifted to sports this week as the World Cup started Thursday in Brazil. A lot of the usual trappings that accompany major sports events are in full view – massive media coverage, analyst prognostications, marketing extravaganzas, etc. But what seems to be missing this year is enthusiasm from the host country, which is particularly surprising for such a soccer-mad country like Brazil.

The core issue is that Brazil has not been doing well economically, and Brazilians feel it. A recent survey by the Pew Research Center found that 72% of Brazilians are not happy with how their country is doing. First quarter GDP was atrocious and a recent survey of Brazilian economists cut 2014 growth forecasts to 1.44% from 2.50% last year. Unemployment rose to 7.1% from 6.2% at the end of 2013. At the same time, Brazilians are seeing billions of dollars being poured into new state-of-the-art stadiums for the World Cup – to the tune of $11.5 billion so far.

The reason Brazil is in this situation is a classic case of economic mismanagement. The current government tried to stimulate the economy with a mix of price controls, government subsidies and low interest rates to try to boost growth at the same time that it is expanding its fiscal deficit. But the global economy has not cooperated and the Brazilian economy has fallen into a precarious situation – slow growth and mounting deficits and debts. Into this mix, the government of President Dilma Rousseff is facing a strong challenge in general elections in October. Part of the current administration’s strategy is to offset criticism of its spending on the World Cup by emphasizing how much more it has spent on other government programs. Good politics, but it brings on more problems down the road.

So a big question being asked right now is, "How much will the World Cup alleviate the malaise that has spread over Brazil?" Much of the commentary around this boils down to predictions on the success of the Brazilian national team in the tournament.

My View: There is no doubt that as the games get going the mood of the country will be lifted to some extent, and the power of sports on a national psyche should not be underestimated. However, it is likely to be short-lived, as the realities of economics set back in after the focus of the world leaves when the cup is over. In addition, any kind of accident or embarrassing slip-up could be very bad for the country’s pride going forward and that can’t be good for the economy.

This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make an independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

Subscribe to Global Perspectives

Global Perspectives is a weekly commentary on international finance and economics including global events and how world issues affect our domestic issues. Fill out the form below to subscribe.