Foreign Policy Blogs

Nobody is immune: Brazil’s Embraer hit by global recession

The recession this year may not in fact be global.  Planet Earth could possibly squeak by with slightly positive growth in 2009.  This is thanks to growth, albeit slower, in the major Emerging Market economies, notably the BRICs, and in spite of contraction in the advanced industrialized world.  Certainly, forecasting growth this year will be as accurate with a crystal ball as with a team of economists; yet what is likely is that Brazil, Russia, India and China will grow.


Brazil, in contrast to its fellow BRICs, is a closed economy.  Current account transactions (a broad measure of trade) represent some 30% of GDP, versus over 40% for the US and over 70% for China.  Nevertheless, Brazil’s expanding export sector has enabled Latin America’s largest country to amass US$200 billion in foreign exchange reserves — for the first time in decades insulating Brazil from the worst effects of a global crisis.  Moreover, Brazilian exports are diversified, not as highly dependent on commodities as peer Russia or as neighbor Peru.  Major exports include cars, planes, chemicals and semi-manufactured metals, in addition to iron ore, oil and soy beans. Further, Brazil is not overly dependent on one market, with roughly a quarter of exports going to the rest of Latin America, a quarter to the EU, 19% to Asia, and only 15% to the US and Canada. The country’s strength in terms of manufacturing and natural resources, as well as access to global markets, underpins its status as a true Rising Power.    


So, is Brazil immune from the current crisis?  Not exactly. 


Brazil boasts some world-class companies, including CVRD in mining, AMBEV in beverages, Aracruz in pulp and paper, Petrobras in petroleum, and Embraer in jet airplanes. 


Embraer is the world’s fourth largest airplane manufacturer after Boeing, Airbus and Canada’s Bombardier.  It competes head-to-head with the latter in the growing regional jet market.  At US$5.5 billion last year, airplanes represented nearly 3% of Brazil’s exports, its fifth largest export category.  Yet the market for airplanes has been grounded.  Embraer today announced a 20% cut in its workforce (see  Likewise, Brazilian exports are affected by lower commodity prices and declining cyclical demand for such products as metals and pulp and paper.  Brazilian GDP and export growth will slow dramatically.   


Yet this setback should not stop the rise of Latin America’s strongest economy.  Since the late 1990s, Brazilian policymakers have been committed to sound macro policies — a flexible exchange rate, low inflation targets, and gradual public debt reduction.  The country’s position in the global economy should continue to improve, as long as Brazilian politicians, entangled in a cumbersome system, manage to maintain sound macro policies and to accelerate the slow pace of economic reform – for example, by streamlining the tax system and promoting infrastructure investment and a more friendly business environment. The adoption of green technologies would serve to protect the Amazon rainforest and put Brazil at the forefront of the new economy.  Most importantly, reform of the unwieldy political system – reducing obstacles to legislative action – though unlikely, could accelerate Brazil’s rise.      




Roger Scher

Roger Scher is a political analyst and economist with eighteen years of experience as a country risk specialist. He headed Latin American and Asian Sovereign Ratings at Fitch Ratings and Duff & Phelps, leading rating missions to Brazil, Russia, India, China, Mexico, Korea, Indonesia, Israel and Turkey, among other nations. He was a U.S. Foreign Service Officer based in Venezuela and a foreign exchange analyst at the Federal Reserve. He holds an M.A. in International Relations from Johns Hopkins University SAIS, an M.B.A. in International Finance from the Wharton School, and a B.A. in Political Science from Tufts University. He currently teaches International Relations at the Whitehead School of Diplomacy.

Areas of Focus:
International Political Economy; American Foreign Policy