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Quick Facts
- Population:
- GDP (PPP):
- $2.3 trillion
- 2.7% growth
- 4.2% 5-year compound annual growth
- $11,769 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Brazil’s economic freedom score is 57.7, making its economy the 100th freest in the 2013 Index. Its score is 0.2 point worse than last year, with gains in freedom from corruption and fiscal freedom offset by declines in labor and monetary freedoms. Brazil is ranked 19th out of 29 countries in the South and Central America/Caribbean region, and its overall score is below the world average.
The foundations for long-term economic development remain fragile in Brazil due to the absence of an efficiently functioning legal and regulatory framework. The state maintains an extensive presence in many sectors, and the legacy of decades of central planning is a substantial tolerance for state meddling in economic activity, even where it has demonstrably failed. Despite some progress, corruption continues to be pervasive.
Progress with market-oriented reforms has been uneven. The burdensome regulatory environment discourages private-sector growth and hampers realization of the economy’s full potential. Increasing inflationary pressure poses a risk to overall macroeconomic stability. Business confidence has floundered, with foreign investments declining about 40 percent in the first half of 2012.
Background
Brazil is the world’s fifth-largest country in terms of land mass and population, and its almost 200 million people are heavily concentrated on the Atlantic coast. Its democratic constitution, adopted in 1988, ushered in an era of economic reform and more responsible monetary policy that broke the back of chronic hyperinflation. President Dilma Rousseff, two-term Workers’ Party President Luiz Inacio “Lula” da Silva’s hand-picked successor, became Brazil’s first female president in 2011 and enjoys a high popularity rating. Brazil has benefited from surging prices for its commodity exports, and it weathered the 2009 global economic downturn better than many developed countries. The middle class is growing, and the real is stable. Ensuring adequate infrastructure for the 2014 World Cup and 2016 Rio Olympic games will challenge the government’s administrative and development capacity.
Contracts are generally considered secure, but Brazil’s judiciary is inefficient and subject to political and economic influence. Though protection of intellectual property rights has improved, piracy of copyrighted material persists. Corruption continues to undermine economic freedom, although President Rousseff has ousted six cabinet ministers in response to a public backlash and mobilization against lax governance standards.
The income tax rate is 27.5 percent. The standard corporate tax rate is only 15 percent, but a financial transactions tax, 10 percent surtax, and 9 percent social contribution on net profits bring the effective rate to 34 percent. The overall tax burden amounts to 32.5 percent of GDP. Public spending is over one-third of GDP, and attempts at fiscal stimulus have added to a history of chronic public deficits. Public debt, however, has been relatively stable.
Progress in improving the regulatory framework has been uneven. Bureaucratic hurdles remain common, including lengthy processes for launching a business and obtaining permits. The non-salary cost of employing a worker adds to the cost of doing business, and labor regulations remain stringent. Inflation has increased as the Banco Central do Brasil has cut interest rates in the face of sluggish demand and an overvalued currency.
The trade-weighted tariff rate is 7.6 percent. Non-tariff barriers and the use of antidumping measures are a cause for concern. Foreign investors are generally granted national treatment, but their activity is restricted in some sectors. A complex tax and regulatory environment challenges investors. The banking sector emerged relatively unscathed from the global downturn, with credits to the private sector increasing.