Brazil's economy grew 7.5% last year, the fastest annual gain in nearly a quarter century and more than twice as fast as the U.S. economy, which expanded 2.8% in 2010. In fact, Brazil's economy has been growing so fast - about 5% a year, on average - that some investors and economists are saying it has peaked and could be ready to backslide. (To learn more on Brazil, check out Investing In Brazil 101.)

TUTORIAL: Economics Basics

That would be quite an about-face, going from a top contender to a has-been in such a short period of time, but there are indications this is happening in Brazil right now. Here are five signs that, economically, Brazil may be on its way to becoming a country of the past.

1. Shrinking Gross Domestic Product (GDP)
GDP is an indicator of economic health representing the monetary value of all goods and services produced within a country during a specific time period, such as three months or a year. In Brazil, economists believe GDP growth is slowing and will fall to around 4.5% or 5% this year. That's as much as a 40% drop-off from last year's 7.5% GDP growth.

2. Worrisome Inflation
Inflation usually picks up as an economy heats up and expands because consumers want more of everything, from food and clothes to cars and houses. And that's just what's been happening in Brazil for more than a decade. There, inflation has gone from a record low of 1.65% in 1998 to 6.7% now - more than a 300% increase. Inflation can severely hinder economic growth when prices get so high that they discourage consumer spending, which is the main driver of growth.

3. Overdependence on Commodities
As a leading exporter of coffee, orange juice, sugar, soy, iron ore and other items, Brazil has been dubbed a "commodities powerhouse." So how could that be bad? Some economists are concerned Brazil is overdependent on commodities and too weak in other areas, like industrial production. In the long-term, that could result in a much slower overall economy even though Brazil does a tremendous amount of commodities business with the U.S., China and other countries. (To help you invest in commodities, read How To Invest In Commodities.)

4. Record-Low Unemployment
At a little over 6%, unemployment in Brazil is near record lows and less than half the historic high of more than 13% in August 2003. Surely, low unemployment is a good thing, right? Not necessarily. Although just about everyone would rather have a job than be out of work, very low unemployment is a major sign an economy has peaked, particularly in the case of Brazil. At this point, excessive government hiring, not a bonafide need for more workers in the general economy, is the main reason for record-low joblessness in Brazil.

5. A Potential Housing Bubble
Brazil is starting to look like the U.S. a few years ago, right before the housing crisis that sent our economy into a tailspin. Property prices are soaring, like in Sao Paulo, which has seen home prices nearly double in only a few years. Also, credit has become much easier to obtain, with the amount issued to the private sector nearly doubling since 2007 - and set to grow another 20% this year. Experts believe many new loans are being made to first-time borrowers who simply can't afford them - just like in the U.S. before the big crash.

The Bottom Line
There are many signs Brazil is at the top of its game economically with only one way to go - down. The question is how quickly and how far it will fall. A major crash like the U.S. had a few years ago doesn't seem likely because the Brazilian government saw what we went through and is already looking to curtail consumer credit. It has also been raising interest rates, a step governments often take to prevent a hot economy from overheating. Thus, a more likely scenario in Brazil is what economists call a soft landing, where the economy gradually pulls back to a more sustainable level of growth. (To learn more about emerging markets like Brazil, check out The Risks Of Investing In Emerging Markets.)

Related Articles
  1. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  2. Economics

    The 4 Countries That Produce the Most Food

    Learn about the four food superpowers -- China, India, the United States and Brazil -- and what sets them apart from the rest of the world.
  3. Mutual Funds & ETFs

    Top 4 Asia-Pacific ETFs

    Learn about four of the best-performing exchange-traded funds, or ETFs, that offer investors exposure to the Asia-Pacific region.
  4. Investing

    Emerging Markets Wary of Fed Interest Rate Hike

    With emerging markets suffering from the economic downturn in China and lower commodities prices, a Fed interest rate hike could be even more devastating.
  5. Economics

    These Will Be the World's Top Economies in 2020

    Discover the current economic forces that are anticipated to significantly shift the landscape of the world's most powerful economies over the next decade.
  6. Mutual Funds & ETFs

    Top 3 Japanese Bond ETFs

    Learn about the top three exchange-traded funds (ETFs) that invest in sovereign and corporate bonds issued by developed countries, including Japan.
  7. Forex Fundamentals

    Buying Yuans as a Long-Term Investment: Risks and Rewards

    Examine the current state of the Chinese currency, the renminbi/yuan, and learn whether it is considered a good long-term investment.
  8. Fundamental Analysis

    Emerging Markets: Analyzing Colombia's GDP

    With a backdrop of armed rebels and drug cartels, the journey for the Colombian economy has been anything but easy.
  9. Investing Basics

    6 Investing Mistakes That the Ultra Wealthy Don't Make

    Understand what ultra-high-net-worth individuals are and how they invest. Learn about the six key investment mistakes that the ultra wealthy avoid.
  10. Mutual Funds & ETFs

    Top 5 Emerging Market ETFs

    Find out which emerging markets ETFs have enough of an asset base, trading volume and low fees to be considered top choices in the segment.
  1. Is Mexico an emerging market economy?

    Mexico meets all the criteria of an emerging market economy. The country's gross domestic product, or GDP, per capita beats ... Read Full Answer >>
  2. Is Colombia an emerging market economy?

    Colombia meets the criteria of an emerging market economy. The South American country has a much lower gross domestic product, ... Read Full Answer >>
  3. Is Argentina a developed country?

    Argentina is not a developed country. It has one of the strongest economies in South America or Central America and ranks ... Read Full Answer >>
  4. Is Brazil a developed country?

    Brazil is not a developed country. Though it has the largest economy in South America or Central America, Brazil is still ... Read Full Answer >>
  5. Are Social Security payments included in the US GDP calculation?

    Social Security payments are not included in the U.S. definition of the gross domestic product (GDP). Transfer Payments For ... Read Full Answer >>
  6. When has the United States run its largest trade deficits?

    In macroeconomics, balance of trade is one of the leading economic metrics that determines the trading relationship of a ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!