The left wing government which has ruled Brazil since 2002 was able to claim that up to 30 million Brazilians had been vertically mobile as a result of
their policies in the 13 years they have been in power. But the situation has changed drastically in the past two years and the future looks gloomy. There seems to be little hope of economic growth returning for several years.
The steel industry expects to make 6% less this year than it did in 2015, both because domestic demand is expected to continue to slip, while exporting at a loss, as occurred in 2015, is not a long-term solution.
With most companies making losses, the industry has called on the government to raise tariffs on imported steel from the present 6–8% to 35%. But because the Brazilian currency, the real, has lost about 40% of its value against the US$ and other currencies in the past year or so, imports have already become much more expensive. In contrast, most Brazilian-made goods have become more competitive in world markets.
All those using steel have been quick to point out that with demand for so many goods so weak, if the price of a key component such as steel were to be raised at the moment, as the industry would like to do, sell even fewer goods would be sold. So far at least, the government seems to prefer the arguments of the users of steel to those of the steel makers, and has refused to raise tariffs.
As readers of this publication know well, Brazil is a leading exporter of numerous commodities, both of minerals such as iron ore, and agricultural goods, with the leading market for many of these being China.
Cuts in demand by China for several types of goods, notably iron ore, as well as pig iron, have hit the Brazilian economy hard. There is some good news to compensate for this, however. For many years Brazil’s imports cost more than its exports earned, partly the result of the currency being overvalued. But now that the prices of all imported goods, notably manufactured goods, have risen sharply, demand has fallen, while export earnings have held up better, aided by the weaker currency.
Because of this, trade moved into surplus last year, easing the pressure caused by the fact that virtually all other economic pointers, notably inflation and the current account deficit, as well as growth have all deteriorated. The slowing of the Chinese economy is not the only difficulty facing Brazil’s economy at the moment. Together with the problems faced by the steel industry, the collapse in the oil price is another serious problem, which is affecting the steel industry.
The discovery of very large reserves of high quality crude oil under deep water far offshore ten years ago, encouraged Brazil’s state-owned oil company, Petrobras, to embark on a massive expansion programme. Plans were made for building dozens of