The hefty appreciation of Brazil’s currency against the dollar over the last two years has helped Brazil overtake Mexico as Latin America’s largest economy in dollar terms.
Brazil had gross domestic product of $794.4 billion for the four quarters ending June 30, according to a report issued Thursday by the Brazilian Census Bureau, known by its Portuguese acronym IBGE. Mexican GDP stood at $765.7 billion for the same period, Mexico’s government reported earlier.
GDP measures the value of all goods and services produced in any given country, and Brazilian GDP has been growing faster than Mexico’s.
But the biggest reason behind Brazil’s move up is the rapid advance of Brazil’s currency, the real, against the dollar — driven by huge demand for Brazilian exports and massive influxes of dollars into Brazil from foreign investors.
The real strengthened 9.4 percent against the dollar last year and has gained 17.2 percent so far this year.
For the calendar year in 2004, Mexico’s GDP of $685 billion surpassed Brazil’s $666 billion. The two countries have traded places periodically as Latin America’s largest economy, but the gap was hundreds of billions of dollars in Mexico’s favor in recent years.
Dollars have been pouring into Brazil because the benchmark interest rate stands at a towering 19.5 percent, giving investors big returns on government and corporate bonds they can’t get almost anywhere else on the planet. Meanwhile, exports are surging based on strong demand for Brazilian products such as soy and steel.
Long-term investors are also taking stakes in Brazilian companies in the belief that President Luiz Inacio Lula da Silva is succeeding at steering Latin America’s largest country on a path toward slow, sustainable growth for the first time in recent memory.