Brazil is One of Few Winners in Global Crisis

By Birgit Jennen

The financial market meltdown a year ago brought Brazil's three-year economic spurt to an abrupt halt, silencing those who had previously held that the country would be able to weather any global financial storm because of its strong domestic economy and stable banking system, reformed after the Latin American debt crisis of the 1980s.

As raw-material prices plummeted and investor risk-appetite dried up, hopes were quenched that Brazil's economy might be immune to the woes of the global markets. The economy contracted 3.6% in the fourth quarter of 2008 and a further 1% quarter-on-quarter in the first three months of 2009.

Just one year on, however, most economists believe Latin America's biggest economy is showing signs of being among the first to rebound from the downturn. Thanks to a speedy turnaround in domestic demand, Brazil is seen as well on the path to recovery, with the economy expanding a better-than-expected 1.9% in the second quarter.

"Brazil is among the few winners of the global financial crisis," says Zeina Latif, an economist at ING Bank in Sao Paulo. This is evidenced, she says, by the fact that over the last 12 months Brazil has seen foreign direct investment rise to $39 billion from $31 billion from August 2007 to July 2008.

Potential risks from the world economy remain, however, so many experts recommend that investors focus on Brazil's more domestic-oriented names for the time being.