By the Blouin News Business staff

The economic dark side of Brazil’s World Cup

by in Americas.

Civil police personnel gather in front of their headquarters while conducting a one-day strike on May 21, 2014 in Rio de Janeiro, Brazil. AFP/Getty Images

Civil police personnel in front of their headquarters during a strike on May 21, 2014 in Rio de Janeiro, Brazil. AFP/Getty Images

The kick-off to the World Cup in Brazil is less than a month away and with it come fears of massive protests and a grey fourth economic quarter, only colored by presidential elections in October. For now President Dilma Rousseff is celebrating some good news, something she hasn’t been able to do much in the past several months: Brazil’s jobless rate dropped unexpectedly in April despite weak job growth as fewer people sought work – the non-seasonally-adjusted jobless rate fell to 4.9% from 5.0% in March. The country’s low unemployment rate is one of Rousseff’s strong assets walking into what will be tight elections.

Despite that, concerns remain about if – and how – the mammoth soccer event will indeed boost the nation’s flagging economy as the President has assured over and over again. Against Rousseff’s will – and reelection chances – it doesn’t seem that it will be the case. Private sector analysts have revised their 2014 growth forecasts for Brazil’s economy downward to 1.62% from 1.69%, the central bank said this week — even as Finance Minister Guido Mantega sticks to his talking point that Brazil’s economy will grow 2.3% this year. Still worse for the government, the same central bank poll of economists raised this year’s inflation rate – Brazil’s biggest headache – to 6.43% from 6.39%, getting ever closer to the top end of the central bank’s target range, at 6.5%.

A series of protests and strikes in cities across the country have been taking over Latin America’s largest economy, something that could be predominant during the major sporting event. Bus drivers in São Paulo were the latest group to join a movement that continues to spread and that will likely disrupt many cities when hundreds of thousands of visitors arrive for the World Cup (around 600,000 foreigners are expected to travel to the country). Police officers in at least 14 Brazilian states went on strike this week to demand better pay and working conditions. It’s likely that these types of manifestations will gain greater steam as June 12, the tournament’s inauguration date, gets closer.

Captura de pantalla 2014-05-22 a las 17.12.05

“Any boost to Brazil’s economy will be small and short-lived, and the structural problems that have limited growth over the past year or so will persist long after the last ball is kicked,” said a recent note from the research firm Capital Economics. On its behalf BBVA Research, who also recently revised GDP figures downwards explained its reasons for doing so:

It is mostly driven by new doses of pessimism regarding the upcoming performance of investment and exports. This is fundamentally due to three factors. First is the deceleration of the Chinese economy. Second, activity moderation and exchange rate depreciation in Argentina, which should affect especially the Brazilian manufacturing sector (Brazilian exports to Argentina, declined by 17% in the first four months of 2014, in comparison with the same period last year). Third, the uncertainty brought about by the risk of domestic energy rationing, which is a consequence of i) insufficient rainfall at the beginning of the year, ii) limited investment in the past, and iii) mismanagement of the policies for the sector, such as the 15-20% cut in electricity tariffs announced at the beginning of 2013 that stimulated demand in a context of relatively weak supply.

Brazil is days away from taking the global spotlight. While the ball rolls things could get ugly. But the worst is yet to come.