Brazil’s Future Less Bright Amid Slowdown, De Gucht Says

Brazil’s economy isn’t growing quickly enough because of its focus on commodities and rising regional protectionism, the European Union’s trade chief said.

“Unfortunately the future looks less bright than before,” European Trade Commissioner Karel De Gucht said today in a speech at the Royal Academy in Brussels. “Brazil should be proud of the enormous progress it has made in recent years, but must also know it cannot sit still if it wishes to move to the next stage of its development.”

Growth in the world’s second-largest emerging market slowed to 2.7 percent last year, less than Germany in the middle of the European debt crisis and down from 7.5 percent in 2010. Brazil’s economy will expand 3.2 percent this year, according to a central bank survey of about 100 economists published last week.

These figures are “worrying,” De Gucht said, because Brazil’s gross domestic product “has quite a way to go before it reaches developed-country levels. For example, it currently stands at roughly one-third of the European average.”

He attributed the reduced growth outlook partly to an emphasis on so-called primary products. Brazil is the world’s second-largest producer of ethanol after the U.S., the third- biggest agricultural exporter and a major mineral exporter. These “marks of success” may be crippling the economy’s ability to produce goods with a higher added value, De Gucht said.

Protectionism Risks

“Success in commodity markets and high commodity prices create inflationary pressures and have played a role in the 29 percent appreciation of the real since 2007,” he said.

Brazil, which ships a fifth of its goods to Latin American countries, “cannot sit still” in light of growing protectionism across the continent “because it has so much to lose,” De Gucht said. A recent example of governments shielding domestic industry from competition is Argentina’s seizure of YPF SA, the country’s biggest energy company, from Spain’s Repsol YPF SA (REP), a move the World Bank and the EU have condemned.

“Argentina has also continued other trade-restrictive policies, like its import-licensing regime,” De Gucht said. “And just last week we saw Bolivia take another step toward nationalizing utility companies at the expense of a Spanish firm. These types of moves are of course a problem for Argentina and Bolivia, which will find it harder to secure the international investment they need.”

The EU “will soon be moving forward with a response to Argentina’s action in the Repsol case,” he said.

To contact the reporter on this story: Jennifer M. Freedman in Geneva at jfreedman@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.

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