Brazil's economy buoyed by China's growth: Economist

BRASILIA — China's better-than-expected economic growth has a positive impact on Brazil's otherwise flagging economy, especially in the primary products sector, said a leading economist.

Jose Luiz Oreiro, professor of economics at the University of Brasilia, said he believes China's 6.9-percent GDP growth in the first half of 2017 has helped to lift Brazil out of its economic doldrums.

"In the first quarter, the only sector that saw real growth in Brazil was agribusiness with a 13-percent increase," said Oreiro, adding that "steel also has reasonable prices due to China's growth, so China's added growth has been good news for the Brazilian economy."

As to China's economic indicators announced last week, the economist said "the result does not surprise me. We expected to see a more moderate growth in China compared to previous years (with a double-digit growth), so the 6-7 percent growth per year is a new norm."

China's economic growth helped sustain the prices of Brazil's commodity exports, offset slowdowns in other sectors of Latin America's largest economy, and also signaled a coming recovery for the global economy, which has been struggling since the 2008 financial crisis, said Oreiro.

"The global economy appears to be getting into third gear. The developed economies are seeing sped-up growth. As the world's second largest economy, China's accelerating growth is important in providing a greater impetus to the global economic growth," said the economist.

However, the main challenge for China will be to reduce its "huge savings rate" to sustain a new growth model that relies more on domestic consumption.

"China will have to put in place social security policies, state-paid pensions and a universal public health system to reduce the savings rate and promote spending, since the Chinese middle class will no longer need to save for medical treatment and thus will buy more consumer goods," he said.

"It is the transition China needs to complete, so that its consumption will represent a larger GDP share. In recent decades, the Chinese economy has been driven by investments and exports, now it needs to give a greater role to spending," said Oreiro.

The outlook for Brazil's economy remains "very bad" though a slight growth was registered in the first quarter of 2017, thanks to a bumper harvest of soy and grains, Oreiro said, adding that "the effect won't last, and my forecast for 2017 Brazilian economy is zero percent growth."