Assignment 1: Macroeconomic Analysis of Brazil, By: Group 6, Section E - 2016-18: First Submission

Ritika ABM13022 | Anurag PGP32205 | Vivek PGP32220 | Honi PGP32226 | Nithin PGP32229 | Aqueeb PGP32237

GDP Unemploy
Growth Inflation ment Very Long Run Analysis
1961- 4.581142 65.02384
65 753 432 -
1966- 7.799736 26.66554
70 531 263 -
1971- 10.31555 26.14512
75 539 338 -
1976- 6.701136 55.73076 GDP Growth Unemployment Inflation
80 581 006 2.95
1981- 1.198419 159.3502
85 956 612 4.4
1986- 2.332470 982.0104
90 953 583 3.3
1991- 3.092295 1156.026
95 215 18 5.98
1996- 2.104510 8.508409 .
00 368 947 8.76
2001- 2.962846 9.402444 Long Run Analysis
05 037 157 9.34
2006- 4.505840 7.545614
10 54 282 7.98
2011- 1.019372 7.671269
15 669 096 6.56

GDP growth Unemployment Inflation

Structural Change
120

100

80

60 Agriculture Industry Service

40

20

0
 Assignment 1: Macroeconomic Analysis of Brazil, By: Group 6, Section E - 2016-18: First Submission
Ritika ABM13022 | Anurag PGP32205 | Vivek PGP32220 | Honi PGP32226 | Nithin PGP32229 | Aqueeb PGP32237

Output Gap
10

8
GDP Growth Linear (GDP Growth)
6

4
f(x) = - 0.2x + 4.63
2 R = 0.12

0 Predicted GDP Growth

-2

-4

-6

GDP Predicted GDP

Very Long Run Analysis: An Year Growth growth analysis of the basic
macroeconomic indicators for 4.1125649 Brazil since 1961 gives us a
good picture of how the 2000 11 4.427286895 economy has progressed.
The GDP growth has seen two 1.6578179 major spurts, between
1971-75 and between 2006- 2001 67 4.224922485 2010. The first spurt was
the result of the state led 3.0531609 development model that
was implemented in the 1960s 2002 2 4.022558075 which realized the all-time
high growth of 10.3%. 1.1403190 However, this growth didnt
last long as in the following 2003 46 3.820193665 decade it fell to 2%. The
second spike was in 2009 5.7608807 when the growth touched
7% and the economy showed 2004 26 3.617829256 resilience to the world
financial crisis. This was 3.2020515 considered to be the take-
off for Brazil which would boost its economy into a
2005 27 3.415464846
high growth phase of prosperity. But the growth
3.9605020
has steadily declined over the last five years due to a
2006 29 3.213100436
combination of faulty fiscal policies and a lethargic
6.0722836
political system
2007 9 3.010736026
Unemployment data was recorded 1976 onwards and
5.0937670
we can see a rising trend over time. In the last 40 years
2008 12 2.808371616
Unemployment has risen from 2% to 6.5% for the period
-
2011-2015. This points that the growth in the Brazilian
0.1261474
Economy has been a largely jobless growth.
2009 15 2.606007207
Brazil has struggled with hyperinflation through the
1980s till the Real Plan was 7.5287973 launched in 1995. The Real
Plan introduced a new 2010 81 2.403642797 currency along with
monetary policy reforms into 3.9102553 the Brazilian system that
helped curb the hyperinflation 2011 48 2.201278387 of the preceding years. The
GDP growth stagnated in this 1.9154586 period which was a
contributing factor to the rising 2012 23 1.998913977 inflation. Inflation
stabilized at under 10% post 3.0151405 the Real Plan. Currently it
stands at 7.9%. 2013 11 1.796549567
0.1033713
Long Run Experience: Since 2014 59 1.594185157 1995 the inflation, output
and unemployment indicators - have not shown massive
fluctuations. The economy has 3.8473624 been growing at ~3% on an
average. Unemployment has 2015 95 1.391820748 been comparatively high at
 Assignment 1: Macroeconomic Analysis of Brazil, By: Group 6, Section E - 2016-18: First Submission
Ritika ABM13022 | Anurag PGP32205 | Vivek PGP32220 | Honi PGP32226 | Nithin PGP32229 | Aqueeb PGP32237

~8%. The inflation in this period has been moving in the 6-8% band. Despite major monetary policy reforms in 1996
which led to the dismantling of the State led growth model and a free floating exchange rate, Brazilian Economy has
not grown at the rate it was expected to. Unemployment and Inflation continue to remain high as compared to other
economies of similar size while growth isnt picking up. Inflation is a necessary evil in fast growing economies but
the average 5-year growth rates show no long term rising trend.

Structural Change: The break-up of the Brazilian Economy today is like any other rich world counterpart. The
services sector make-up about 68% of the GDP followed by industry, followed by Agriculture. Brazil started out as an
industrial economy in the 1960s owing to the state led development model that was instituted which installed massive
capacities manufacturing, mining and public utilities. This composition has steadily changed in the favor of services.
This change was witnessed in the aftermath of the 1995-96 reform policies which opened up the economy and
brought down inflation.

Output Gap: The Brazilian Economy is expected to grow at 1.18% in FY2016 as per the regression analysis. This
analysis has a very low R2 value which means that there is no definite relationship between the GDP of Brazil and the
time period. There is a steady divergence between predicted and actual GDP growth rates. This output gap can be
attributed to the fruits of inefficient fiscal policy combined with an ageing population that makes an unsustainable
welfare system. Coupled with poor investment choices that prioritized Olympics over public utilities, the Brazilian
economy has been steadily deteriorating since 2013. The political turmoil surrounding the corruption by State run
petroleum corporation Petrobas in collusion with leading political figures has led to a policy paralysis in the
economy. The output is expected to contract annually at the rate of 0.2%. Despite the output gap, a definite downward
trend for growth has been realized through the regression which has been mirrored by the actual estimates of growth.
The Brazilian Economy is a classic case of failed take-offs such that the economy looks very promising due to sudden
growth spurts coupled with some reforms, however the implementation of follow-up policy is far from adequate to
sustain any long term growth. The 1996 post Real Plan Reforms saw definite promise in the economy that would set
it on par with global economic leaders as predicted by Goldman Sachs in 2001. However, after the first second Lula
Government went out of power in the mid-2000s the GDP growth fell. Same fluctuations have been witnessed at
different points. But the long term average growth trends have stagnated while unemployment and inflation refuse to
reduce.