Brazil’s Economy Looking Up – But Don’t Thank the Olympics

If there’s one myth that should be severely laid to rest, it’s the ridiculous levels of investment needed to host an Olympic games can revive a failing economy.   Brazil’s economy has been in trouble for years, yet recently  there has been signs of recovery.

There are obviously many economic indicators which can suggest the future prospects of an economy – however often one of the most reliable is the quite simple measure of economic activity.  It doesn’t always suggest improvement, often activity can indeed be the precursor to very bad news but for a country in malaise like Brazil – increased activity is something that is essential for recovery.

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The last few months in the UK after Brexit – the measure has predicted a heading back towards recession, economic activity has plummeted while businesses and investors try and figure out what’s going on.  One of the main issue in Brazil is debt, and the President’s economic team has made this a priority.

As I sat and watched the BBC’s Olympic coverage last night of the opening ceremony – I and many were impressed not just by the spectacle but by the obvious restraint in budget.  An economy with huge debts will do itself no favors by displaying no sense of the value of money.  Remember not that long ago Greece through a lavish spectacle at the Olympic games too, it turns out that the  money spent wasn’t even theirs.  The Olympics will not help the Brazilian economy but a responsible attitude to the costs involved may just pay dividends.

There needs to be a serious improvement in macro-economic outlook in Brazil, to reduce the cost of the equity.   There is no doubt that Brazil and neighboring countries offer attractive investment opportunities as long as there is some stability in the economy and the Brazilian bond markets.

The Olympic games always lose money despite what anyone says, and this can be very painful for smaller and developing nations. According to the world news, the Rio Games are costing over $10 billion which is relatively modest in comparison to some recent games.  There are long term benefits and of course these can be assigned an economic value but overall the Olympics usually cause more problems that they solve at least in the short term.

The feel good factor in Brazil could go a long way though and hopefully these small improvements in economic activity combined with more sensible macro-economic policies could lead to a recover sooner rather than later.

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