How Brazil’s China-Driven Commodities Boom Went Bust – by John Lyons and Paul Kiernan (Wall Street Journal – August 27, 2015)

http://www.wsj.com/

Developing nation’s big bet on China turns sour as China’s appetite for exports dims; ‘looking at a lost decade’

SÃO PAULO—Not long ago, Brazil stood as the leading example of how a developing nation could rise toward global prominence on the force of a China-driven commodity boom.

As its economy surged, Brazil stormed the world stage—hosting a World Cup, demanding more say at the United Nations and blocking a U.S. free-trade plan for the Americas.

Now Brazil is looking like a symbol of something else: resource-rich nations’ habit of ending their booms with spectacular busts.

Brazil’s stock market is down 22% in the past year. Its currency has lost a third of its value against the dollar. And on Friday, Brazil is expected to report that in the second quarter, its economy shrank at a pace of about 1.7%. Economists are voicing fears of prolonged stagnation.

China has caused turmoil in many places, but none more so than in this prime supplier of commodities to a country whose once-voracious appetite for them has dimmed. Brazil’s pain from China’s slowdown isn’t largely confined to the financial markets, as in some countries, but goes to the heart of its real economy.

“We went from Brazil mania to Brazil nausea,” said Marcos Troyjo, a former Brazilian diplomat who leads a Columbia University center studying emerging markets. “We are looking at a lost decade, where growth stagnates, inflation is high, and, most sadly, a decade where you’ve learned nothing.”

For Brazilians who believed, as their leaders were saying, that the country would climb to first-world status during the resources boom, the downturn has come as a profound disappointment. Big antigovernment demonstrations are now regular events: Protesters decry the corruption that a sweeping investigation is uncovering, and many call for President Dilma Rousseff’s ouster. As inflation nears double-digits and as unemployment and interest rates rise, middle-class households are starting to miss car payments and the poor are eating less meat.

“Beef is the first to go!” said Janeide Ferreira, a 54-year-old cleaner in Rio de Janeiro who must take a sweaty two-hour bus ride to work each day from the slum where she lives. “Things were so much better five years ago.”

Brazil is in danger of losing its investment-grade rating, to judge by the negative views of credit-rating firms, potentially sparking a disorderly currency decline.

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