111 510 510 libonline@riphah.edu.pk Contact

World Cup boosts Brazil economy, but what comes next?

With a goofy sales pitch, piercing vuvuzela solos and giant green and yellow hat, Brazilian entrepreneur Josimar Barbosa was wooing customers and raking in a World Cup windfall. “You too can be this sexy while you root for Brazil! Get your hats, vuvuzelas, flags!” he called to the crowd checking out the football merchandise displayed outside his store on a busy street in central Rio de Janeiro. Wheeling and dealing, the charismatic 27-year-old closed one sale after another.

“It’s like this all the time,” he told AFP, estimating his sales are up 90 percent. “Everything about this event is good for Brazil, including for us small businesses,” he said, winking at a middle-aged woman buying 65 reais’ worth of merchandise for 60 reais ($25).

The World Cup is adding 30 billion reais ($13.4 billion) to the Brazilian economy, according to a government-commissioned study by FIPE, the University of Sao Paulo’s economic research institute. The institute says hosting the tournament has created one million jobs in Brazil – the world’s seventh largest economy, with a GDP of $2.4 trillion in 2013.

But not all experts agree. Other estimates say the boost is far smaller – less than the $11 billion the government spent on the event. And many economists warn World Cup spending is fuelling inflation that may not end with the tournament. “The hosting of a major sporting event has not and will not have a major positive impact on Brazil’s economy,” said French insurer Euler Hermes, a subsidiary of Germany’s Allianz, in a recent report.

The World Cup will bring “more inflation than growth for Brazil,” predicted the firm’s economic research arm. Consumer prices rose 6.4 percent in the 12 months to mid-June, nearing the central bank’s target limit of 6.5 percent. Brazilians – fearful of a return to the hyperinflation that gutted salaries in the 1980s and 90s – often complain their money doesn’t go as far as it did a few years ago. That is a problem for leftist President Dilma Rousseff, who is up for re-election in October and has to persuade voters she can reboot the sluggish economy.

Brazil’s economy has lost the aura it had in 2007, when the country was picked to host the World Cup under Rousseff’s predecessor and mentor, the popular Luiz Inacio Lula da Silva. Economic growth, after hitting a blistering 7.5 percent in 2010, slowed sharply over the next three years, coming in at just 2.5 percent in 2013. Economists polled by the central bank are forecasting 1.2 percent this year.

The slowdown is all the more painful because the boom years lifted 36 million Brazilians out of poverty, about 18 percent of the population. Innovative social programs helped foster that exodus by paying people to do things like send their children to school, a bid to break the cycle of poverty.

But households that got used to having disposable income now find their buying power slashed by rising prices, which is fuelling social unrest. And the government’s books are overstitched. Economists say Brazil has relied too much on consumption and not saved enough, channelling money to social programs at the expense of badly needed investment in areas like infrastructure.

“The consumer-led model has probably run out of steam,” said Marcos Troyjo, economist at New York’s Columbia University. “Brazil has to go through some sort of change of DNA. Now it has to be about more investment, it has to be about more exports, more connection to global markets, it has to be about competitiveness becoming a second religion.” But Rousseff is unlikely to overhaul the current economic model while on the campaign trail.

Troyjo said the World Cup and the elections were delaying needed reforms. “It’s as if time is just standing still, and it will only move away from this freeze after the October elections,” he told AFP. Brazilians who are making money off the World Cup say they fear what will happen after. Eduardo Blumberg, a partner in Brazilian clothes-maker Dimona, said his sales are up 20 to 30 percent thanks to the Cup.

But he said he has also been feeling the pressure of inflation, and he fears things will get worse before they get better. “Every time we place an order our suppliers have a higher price,” said Blumberg, 53. “It’s true the World Cup is helping us. It’s a festive event, people are out spending money. But it’s just delaying the economic fall.”

Joshua Howat Berger, "World Cup boosts Brazil economy, but what comes next?," Business recorder. 2014-06-28.
Keywords: Economics , Economic issues , Economic system , Economic growth , Economic development , Economy-Brazil , World Cup , Disposable income , Investment , Industries-Brazil