The latest growth measures unveiled by the Brazilian government, which focuses on easing restrictions on the supply side, marks a subtle but important shift in the government's approach to getting the economy growing again, Capital Economics Chief Emerging Markets Economist Neil Shearing said.
Capital Economics, however, cautioned that though the measures announced today are clearly a step in the right direction, they will have to be followed by broader and deeper reforms if Brazil is to ever achieve sustainable growth of 5 percent a year. The slow nature of supply side reforms mean that growth is likely to disappoint over next year or so, it said.
According to Shearing, the new proposal mainly aims at boosting investment in the country's creaking infrastructure. However, it represents only a small fraction of what needs to be done in order to raise potential growth in Brazil.
Unlike measures announced in previous occasions, which concentrated on boosting demand, the new measures are focused on easing restrictions on the supply side of the economy, which have contributed as significantly to the stagnation of Brazil's economy over the past year as faltering demand did, the economist noted.
The latest initiative involves a plan to auction $65 billion of concessions to build and operate the country's roads and railways over the next few years, which is expected to attract investments equivalent to around 0.5 percent of annual GDP over a five-year period. The government also plans to auction more concessions to build and run seaports and airports over the coming weeks.
The economist, however, observed that the proposal is fairly narrow in scope as it does not address the high burden on business that underlies low rates of productivity growth.
by RTT Staff Writer
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