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Quick Facts
- Population:
- GDP (PPP):
- $3.1 trillion
- -3.8% growth
- -0.4% 5-year compound annual growth
- $15,242 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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Brazil’s economic freedom score is 51.4, making its economy the 153rd freest in the 2018 Index. Its overall score has decreased by 1.5 points, with a steep drop in fiscal health and declines in labor freedom, business freedom, government spending, and government integrity overwhelming improvements in judicial effectiveness and property rights. Brazil is ranked 27th among 32 countries in the Americas region, and its overall score is below the regional and world averages.
Since taking office in August 2016, President Michel Temer has proposed economic reforms to slow the growth of government spending and reduce barriers to foreign investment. Government spending growth helped to push public debt to 70 percent of GDP at the end of 2016, up from 50 percent in 2012. Policies to strengthen Brazil’s workforce and industrial sector, such as local content requirements, may have increased employment at the expense of investment.
Background
Brazil, the world’s fifth-largest country, has a mostly coastal population of more than 200 million and is dominated by the Amazon River and the world’s largest rain forest. Public corruption scandals have led to political chaos. Former President Luiz Inácio “Lula” da Silva of the socialist Workers’ Party faces multiple judicial trials on charges of corruption. His successor, Dilma Rousseff, continued his leftist and populist agenda but was impeached and removed from office early in her second term for alleged budgetary misconduct to boost vote-buying during an ongoing economic downturn precipitated by crashing commodity prices. Michel Temer, a market-oriented centrist who then assumed the presidency, has also been tainted by allegations of corruption. His top priority has been consolidation of public finances.
Property rights are enforced, but challenges to intellectual property rights persist in Brazil. The judiciary, although largely independent, is overburdened, inefficient, and often subject to intimidation and other external influences. Corruption and graft remain pervasive, especially among elected officials, undermining the government’s ability to make and implement policy without undue influence from private or criminal interests.
The personal income tax rate is 27.5 percent. The standard corporate rate is 15 percent, but other taxes, including a financial transactions tax, make the effective rate 34 percent. The overall tax burden equals 32.0 percent of total domestic income. Over the past three years, government spending has amounted to 40.5 percent of total output (GDP), and budget deficits have averaged 8.4 percent of GDP. Public debt is equivalent to 78.3 percent of GDP.
High nonsalary labor costs, low domestic productivity, and ongoing political uncertainties hamper business formation. Business owners often complain about the Custo Brasil (Brazil Cost), including poor infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements. The government has cut back on subsidized lending by the national development bank (BNDES) and has reduced fuel subsidies.
Trade is moderately important to Brazil’s economy; the combined value of exports and imports equals 25 percent of GDP. The average applied tariff rate is 8.3 percent. Nontariff barriers impede trade. Government openness to foreign investment is below average. Banking and capital markets are diversified and growing, but state involvement in credit markets has expanded steadily, and public banks account for 50 percent of loans to the private sector.