29 Jul

How Brazil’s Growth Model Is Shifting

WRITTEN BY Sarah Sands

Brazil’s GDP structure

The service sector plays a major role in Brazil’s (EWZ) GDP. The contribution of the service sector is generally high in its GDP, compared to the industrial and agricultural sectors.

In 2005, the industrial sector contributed 28.5% to its GDP, the service sector contributed 66% to its GDP, and the agricultural index contributed 5.5% to its GDP.

How Brazil’s Growth Model Is Shifting

Shift in growth model

However, the situation is changing as the country is shifting its growth model. From this figure, we can see that since 2005, the contribution of the service sector to its GDP has been increasing while the contribution of the industrial sector to its GDP has been declining.

Agricultural growth remained subdued. In 2015, the agricultural sector contributed 5.2%, the industrial sector contributed 23%, and the service sector contributed 72%. This shows that the economy is clearly changing toward the service sector.

Brazil’s stock market is making new highs despite the fall in commodity (DBC) index. Commodities such as crude oil (USO) (BNO) (DBO) and metal products has been key drivers for Brazil’s economy. However, the growth model is shifting.

Brazil is moving from an industrial-based economy toward a service-based economy. The service sector is supporting the movement of Brazil’s stock market. Now, let’s discuss the specific service industry, which is supporting the movement of Brazil’s index.

How Brazil’s Growth Model Is Shifting

Recent performance of Brazil

We can see from the above graph that in its recent performance, Brazil’s stock market is touching new highs despite the fall in the commodity index. However, the IT index and financial index provides support to the movement of the overall market.

The financial sector mainly depends on consumerism and fluctuation in interest rates. If consumerism can change the economy, then it can surely drive growth in the financial sector. The IT sector also benefits from the country’s depreciating currency. These two sectors simultaneously supports the movement of Brazil’s index.

In the next part of this series, we’ll analyze the importance of agricultural commodities in Brazilian economy.

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