Economic Analysis: United States & Brazil

A side by side comparison of the economies of the United States and Brazil should take into account multiple economic indicator variables, including GDP and GDP growth rate, exchange rates, inflation rates, interest rates on short-term gov. debt, unemployment rates, and overall trade deficits per year. This paper will display and analyze these figures for both Brazil and the United States for the past 10 years times and will describe and analyze the trends, strengths and weaknesses, and overall conclusions that can be drawn from this data.

Using information from both The World Bank’s “World DataBank” and the S&P 500 PE Ratio, the GDP and GDP growth rates of Brazil and the United States can be compared as follows:

(Chart omitted for preview. Available via download)

The above data in Brazil shows very strong growth over the past 10 years in both overall GDP (which has increased by over 400% total) as well as strong GDP growth rates. 2003 saw a slow rate of growth which may have local/political causes in Brazil, but otherwise, growth rates were strong except for 2009 which can be accounted for by the global economic downturn experienced by all nations in this year (World Bank, DataBank, 2013). In contrast, the United States' growth has seen a more consistent but lower average GDP rate over the past 10 years, in which most years fluctuated between 2 and 3 % (except again for 2008 and 2009 which actually saw a decrease of 3.3% followed by a 0%) (S&P 500 PE Ratio, 2013).

While both the United States and Brazil saw their GDP increase by a little under 2 Trillion over the decade, this increase represents a much larger percentage increase of Brazil’s initial GDP, which in 2003 was around 550 billion (World Bank, DataBank, 2013)3. This suggests that Brazil has undergone a much more dramatic increase, or even boom, in their overall economy over the past decade, while the increase in the United States has been far less explosive. Brazil’s dramatic increase in GDP suggests that it is undergoing a transformation in the world as an emerging economy of very great size, and that this transformation is trending to continue throughout the coming decade.

Concerning the economic indicator of exchange rates, in comparison to the United States (which is used as the basis for exchange rates and as such can be said to be considered as 1.000 throughout the past 10 years), Brazil has seen a steady decline in their exchange rate to the U.S. dollar, which began in 2003 as 3.08 and decreased steadily to 1.83 by 2008 according to the World Bank DataBank3, after which it has shifted between 2.00 and 1.67 in recent years (most recently staying at 1.95 in 2012) (World Bank, DataBank, 2013) . This decrease from around 3.08 to around 2.00 in the last decade represents a very strong strengthening of the Brazilian currency, which is an indicator of strong growth and development in comparison to the United States.

Brazil’s inflation rate of the past decade began at a very high 13.7% in 2003, and shifted much lower to 8.0 and below, decreasing gradually to 5.3% in 2012 (World Bank, DataBank, 2013)5. The fact that the high rate of 2003 shifted quickly lower is a sign of increasing health of the Brazilian economy, as too high of an inflation rate could lead to a large economic downturn and slower growth. According to the World Bank, the United States’ inflation rate has been very low over the past decade, which began 2003 at 2.1% and has vacillated between 3 and 2 % over the course of the decade (with a very low rate of .9% in 2009 as an indicator of the economic downturn of the time) (World Bank, DataBank, 2013)5. This low inflation rate can be seen as a sign of the overall health and stability of the United States’ economy.

The economic indicator of interest rates on short-term government debts can be an indicator of overall economic stability, as the lower the rates offered, the more trust that is placed in repayment by the lender. According to World Bank data, Brazil began 2003 with an average interest rate on short-term debt of 7.1%, which dropped to 4.8% in 2008 and continued its trend of decreasing until hitting a low of 3.0% in 2010 and 3.8% in 2011 (World Bank, DataBank, 2013)5. This is a sign of a trend of increasing health in the Brazilian economy.

According to information at Trading Economics (2013) , Brazil’s unemployment rate has seen a steady decline in the past decade, in which in 2003 and 2004, the rate hovered between 12 and 14%, it has steadily decreased since to the lowest Brazil has ever seen as just over 5 percent. This is a very good sign of the overall health of the Brazilian economy, as well as an indicator of the trend in the significant economic improvement Brazil has experienced in the past decade. The unemployment rate in the United States, in contrast, has seen a large upward shift in the past decade that it has yet to fully recover from (Trading Economics, 2013)6. Trading Economics shows that in 2003 the United States unemployment rate was just under 6% and decreased to just over 4% in 2008, before increasing sharply with the economic downturn up to 10% (2013)6. Since this increase, the rate has steadily declined to just over 7%, but it has yet to fully return to rates seen before the economic downturn (Trading Economics, 2013)6. This shows how much more of an effect the global economic downturn had on the U.S. economy in comparison to the Brazilian economy, which saw hardly any increase in unemployment rate over the same period.

With their strategy of global free trade, the trade deficit seen in the United States over the past decade has been consistently negative (in which far more value is imported than exported), and has seen a fairly steady deficit of 40 Trillion USD since 2003 (World Bank, DataBank, 2013) . Brazil’s balance of trade has been quite the opposite, in which the past decade has seen more exporting than importing of trade value, on average about 4 Billion to 6 Billion more export value than import value (World Bank, DataBank, 2013)7. This has been shifting lower, though, and recent years have even seen a slight shift in this balance towards more import than export value (World Bank, DataBank, 2013) . This shift is a sign of a more developed, less export-based economy, and is also a sign that the overall value of labor is increasing in Brazil.

Brazil’s overall drastic increase in overall GDP and high steady GDP growth rate, as well as low unemployment and decreasing exchange rate is a sign that the country is seeing a large, maturing of their economy and is setting itself up to be a large global market economy (if it is not already). This is a very drastic change from the beginning of the past decade, in which Brazil was a relatively smaller scale economy. This shift is undoubtedly good for the Brazilian public, as the decreasing unemployment rates over the decade indicates, as well as the shift in trade balance, which is an indicator of overall quality of life and size of the Brazilian middle class.

The United States’ economic trends in the past decade have been very different from Brazil’s, in which there has been no drastic increase, but rather a steady maintaining of a very strong, healthy economy. While the overall GDP has grown at a steady rate, the economy has yet to recover fully from the large economic downturn of 2008 and 2009, which affected the U.S. economy much more strongly than Brazil’s.

Bibliography

"Brazil Unemployment Rate | Actual Value | Historical Data | Forecast." Trading Economics | 300.000 INDICATORS FROM 196 COUNTRIES. http://www.tradingeconomics.com/brazil/unemployment-rate (accessed October 21, 2013).

"Interest rate gov debt - World Bank Search." World Bank Search. http://search.worldbank.org/data?qterm=interest+rate+gov+debt&language=EN&format= (accessed October 21, 2013).

"Official exchange rate (LCU per US$, period average) | Data | Table." Data | The World Bank. http://data.worldbank.org/indicator/PA.NUS.FCRF (accessed October 21, 2013).

"The World Bank DataBank | Explore. Create. Share." The World Bank. http://databank.worldbank.org/data/views/reports/tableview.aspx (accessed October 21, 2013).

"US Real GDP by Year." S&P 500 PE Ratio. http://www.multpl.com/us-gdp-inflation-adjusted/table (accessed October 21, 2013).