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A horrible semi-final loss to Germany isn’t the only depressing result to come out of the World Cup for Brazil. The economy isn’t doing so well, and the international soccer tournament doesn’t seem to be helping much. This wasn’t totally unexpected: a Moody’s report from the spring estimated that the World Cup would have exactly zero impact on Brazilian GDP. The report concludes that “while the event offers a potential reputational benefit, it could be marred by a reprise of the social unrest seen last June or if needed infrastructure was not ready.” So far, there’s not been a ton of unrest, but the infrastructure is incomplete.
Fusion’s James Young reports from Fortaleza that the promised light rail system for the host city lies unfinished, and “cars, buses, and motorbikes must bump over a wide, dusty patch of waste ground” to get to the stadium. Young’s story — worth reading in full — is about the middle class Brazilians, who are unlikely to get anywhere near the stadiums. In Brazil generally, Young writes, “while individual earnings and personal credit have grown … the services provided by the state—housing, urban infrastructure, and sanitation, for example—have rarely kept up.” Matt Slaughter and Jaana Remeswrite at Project Syndicate that while Brazil is the world’s seventh-largest economy, it ranks 95th in per capita GDP. That’s largely because it ranks so low in connectedness: “flows of goods, services, finance, people, and data and communications.”
A more recent report from Moody’s, out this week, estimates GDP growth at 1.3% this year and 1.5% in 2015 (the economy grew by 2.5% in 2013, and 7.5% in 2010). Inflationis at nearly 6.5%. A recent Gallup poll revealed that 55% of Brazilians think the World Cup is going to hurt the economy, despite government claims that the event created a million jobs and a sense that the cup is at least good for the country’s reputation. Brazilians should be mad about the event’s economic waste, writes Cullen Roche, because “it’s one of those situations where the government tries to do something for the public good, but sacrifices the long-term for the near-term. It’s just not good business or good government.”
“In football and in living standards, Brazilians have experienced an abrupt downgrading of their prospects from promising to hugely problematic,” writes Mohamed El-Erian. However, on the brighter side, he thinks Brazilians’ disappointment over the World Cup loss is likely to show up in the upcoming October elections. That, in turn, “could lead to a market rally as investors become more optimistic about the possibility of economic reforms under a new government after the elections.” UBS’s head of emerging market strategy, Geoffrey Dennis, has similar thoughts. He told Bloomberg:
It is such a humiliating defeat that you wonder whether it will have a negative impact on Brazilians’ psyche. It’s going to confirm to the people that “Look, our economy is struggling, we cannot get any growth, now we don’t even have a decent football team either.”
— Shane Ferro
On to today’s links:
FOMC minutes: The taper will end in October - Federal Reserve
Jeremy Stein: “There’s no free lunch when central banks try to use broad new regulatory powers to stabilize the financial system” - Ylan Mui