World Cup Will Fail to Boost Brazil’s Economy, Israeli Insurer Says

Brazil has indulged in protectionism and high taxation while failing to invest enough in infrastructure.

Reuters

A key Israeli export insurer doesn’t expect the soccer World Cup to extricate Brazil from its financial woes, marked by rising inflation and slower economic growth.

David Milgrom, CEO of the Israeli Credit Insurance Company, said Sunday that many Israeli exporters had high hopes for Brazil before the World Cup, but now concerns about bankruptcies and social unrest have come to the fore.

In the first quarter of this year, Israel’s exports to Brazil amounted to $279 million, 10% lower than a year earlier.

According to Milgrom’s firm, the World Cup won’t only fail to jump-start Brazil’s economy, it will worsen inflation. This assessment is also based on an analysis by Euler Hermes, a multinational credit insurance firm and a controlling shareholder of the Israeli Credit Insurance Company.

Officials at ICIC note that countries are often eager to host the World Cup because of an expected economic boost, but with Brazil the benefits have been impeded by a lack of infrastructure investment, protectionism, high taxes and the overall tough business environment.

The additional investment linked to the games increased the country’s gross domestic product by just 0.5% in recent years, while boosting inflation by 2.5% and setting off social unrest. Meanwhile, the positive effects of the investment are expected to dissipate by the end of the year, with inflation forecast to remain high until 2020.

Despite the investment, Brazil’s economy is expected to grow by just 1.8% this year after topping 2% the previous two years and reaching as high as 7.5% as recently as 2010.

Even hopes for higher employment have failed to come to fruition. The World Cup created only 700,000 new jobs in a civilian workforce of 100 million people, and most of the jobs will be slashed after the games, ICIC says.

Brazil’s weakness is also reflected in bankruptcy filings, which are expected to climb 9% this year and 3% in 2015.

But not everything is dismal. ICIC notes that no real estate bubble is foreseen at the end of the games, and government spending on the World Cup won’t dent the national budget too badly.