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Brazil Preparing To Shut Down As FIFA World Cup Nears

Brazil Preparing To Shut Down As FIFA World Cup Nears

Posted by Juan Gavasa on June 02, 2014

The FIFA World Cup comes to São Paulo in a Brazil vs Croatia match on June 12.  From there on in, it will be four weeks of nothing but world championship football (only gringoes call it soccer), a sort of Carnival party on steroids.

Brazil, in essence, will shut down.  The collective life of Brazil, for the most part, from Fortaleza to Florianopolis will be football, and football parties. Anyone trying to do business in Brazil this next month will have to wait until it all ends on July 13.

It’s going to be a long five weeks.

Everyone is expecting Brazil to make it to the final four semi-finals, something their national team did not do in 2010 in Johannesburg, South Africa.  According to economist Ilan Goldfajn of Itau BBA, the investment banking arm of commercial lending giant Itau Unibanco, Brazil will head into the final rounds with Argentina, Spain and Germany. If one can predict a sporting event by using proprietary economic models, then Brazilians will be glued to Globo TV for sometime, rather than wallowing in their sorrows over an early elimination. Your Brazilian broker will be impossible to reach at game time, and after game time.

Besides football however, there will be more drama in Brazil.  Activists promise to cause a havoc in the weeks ahead.

“We’re not going to be violent the way the police have been violent, or the state has been violent against those living on the outskirts of town. But we are going to instill chaos, for sure,” said an unnamed activist interviewed by Estado de São Paulo newspaper and published this weekend.

While Brazil’s social inequality gap has certainly closed over the last 12 years thanks to robust social welfare programs that greatly benefited the poorest of the poor, city life has become more strenuous than ever.  And those who cannot afford living closer to the center of the city are stuck with the worst schools, the worst public hospitals, the worst infrastructure, and the least public safety. Brazilians have had enough, and activists see FIFA as a way to make their voices carry.  So besides football scores, public activism will be story No. 2 in Brazil.

FIFA is now story No. 1 and will be until mid-July.

For years, the only Brazil story was the economy, save for the usual once a year flap over Carnaval and condom sales.  Brazil was a boom town not too long ago.  But now, like its BRIC partners China and India, Brazil is back to being a speculators market.  Despite the economy growing just under consensus, the MSCI Brazil is actually outperforming the MSCI Emerging Markets Index.

Last week, investors got some sour news on the economy.

First quarter GDP expanded by 0.2% on a quarterly basis, still in line with consensus.  The weaker 2013 year-end also lowers the statistical carry-over expected for 2014 and adds some downward risk to Brazilian growth forecasts. On a yearly basis, Brazil’s GDP expanded by 1.9%.  But this is as good as it gets. Nomura Securities analyst Tony Volpon said Brazil’s 2014 GDP could easily come in below 1%.

“The most alarming sign is the simultaneous contraction of consumption and investments, a situation which last occurred in 2011 and preceded a period of fairly slow growth,” said Volpon.

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