Brazil Needs a Hat Trick
June 13, 2014
Senior Vice President City National Foreign Exchange Manager
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
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