In 2012, while Brazil was still the darling of the emerging world, Indian investor Ruchir Sharma wrote an article on Foreign Affairs describing why he was pessimistic about Latin America’s top economy. He wrote:
“this glowing image of Brazil rests on an extremely shaky premise: commodity prices. The country has grown largely in concert with surging demand for its stores of oil, copper, iron ore, and other natural resources. The problem is that the global appetite for those commodities is beginning to fall. And if Brazil does not take steps to diversify and boost its growth, it may soon fall with them.”
Mr. Sharma couldn’t be more right. A mere two years later, Brazil plunged into its worst recession on record. While it is undeniable that the Dilma Rousseff administration had its share of blame in the financial disarray of the country in 2014, we cannot ignore the impact of the drop in commodity prices on the Brazilian economy. Unfortunately, Brazil’s dependence on basic products hasn’t changed much since Mr. Sharma’s article—and we could be headed for another rough patch.