Brad Setser

Follow the Money

Cross border flows, with a bit of macroeconomics

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Muito Forte

by Mark Dow
July 7, 2009

This is Mark Dow here. Brad’s still on vacation.

Here’s a quick chart  for anyone questioning the conditional convergence growth hypothesis in emerging markets. In English, the hypothesis loosely posits that you can’t commit suicide jumping out of the basement window (ie. those who start from a much lower base will tend to grow faster until thier growth rate converges with that of more developed countries.)

This chart was brought to my attention by Marcio Ferreira, one of my colleagues at Pharo.

The red line is Brazilian vehicle sales going back to 2001. The white line is the vehicle sales in the US. The two time series are normalized to Dec 2001 so we can see the contrast in growth rates. It paints a powerful picture.

Brazilian vehicle sales vs US vehicle sales, 2001-2009, normalized


  • Posted by JBW

    Should we expect a similar graph to apply to other things like mobile phones? personal computers? Does it?

  • Posted by imapopulistnow

    It looks like decoupling to me.

  • Posted by WStroupe

    This global crisis, spawned upon the world by the developed economies (the argument that the EM savings glut is to blame for the imbalances that caused the crisis is bovine feces, in my assessment), is giving real impetus and urgency to the process of decoupling from the developed economies. And new and compelling data is giving renewed credibility to the concept.

    Hey Mark, how about doing a post on decoupling?

  • Posted by Mark Dow

    Decoupling is a good idea. It is on the list. I have to see if I can do it without neglecting my trading book too much.

  • Posted by IAN LEE

    Uma bolha ! Once the froth comes out of the commodities bubble – the Commodity Futures Trading Commission are on the case – this and other charts will look rather different.

  • Posted by FollowTheMoney

    Asian and Brazil growth story in tact…decoupling will happen, but not in 2009. Neither Asia nor Brazil can lift the global economy out of this storm.

    Look for Asia/Brazil to be the first out, probably in late 2010 or 2011.

    China perhaps more than Brazil has structural problems, and well Brazil may be too reliant on oil.

    How does Brazil look with oil at $35 and how does China look when month after month export demand lacks?

    Be patient, and don’t forget CHILE!

  • Posted by WStroupe

    FollowTheMoney said, “Neither Asia nor Brazil can lift the global economy out of this storm.”

    True, if by “global economy” you’re including the developed economies. The DE massively over-reached, are bringing the colossal ‘debt house’ down upon themselves trying to “solve” the crisis, and won’t return to stable growth for a long time.

    But the EM can bring THEMSELVES out of the storm much sooner than most experts think, though they aren’t likely to see quite the hot hot hot level of growth they saw when the DE consumers’ were in the drunken stupor of conspicuous consumption. That drunken party’s over, and the EM finally get it. It’s time for a new way for the EM to achieve growth, and they know it. But the transition is one they want to make orderly, if they can.

  • Posted by locococo

    Sure they can. Index reshuffle. Re-weight a bit here and here and bring in a derivativativevative there, along the already de-weighted a bit underlying reserves… And brand that BW 3.0?

    He he.

  • Posted by sam

    yeah, a bit of decoupling

    but the brazilian market is much smaller, so i´m not amazed by this stuff

    this year the government put some tax rebates to new cars, and that helps to explain what is going on

    the industry has lowered prices too (hurting used cars market)

    but the thing is auto loans delinquencies are sky high these times

    so I think we are more close to the end of this decoupling thingy than to the beggining

  • Posted by john

    How about posting the same going back to 1950? I get what you’re saying, but in attempting to one provide perspective, the larger, long term one is still relevant.

  • Posted by Noah

    So the conditional convergence hypothesis started to be true in 2005?

    um pouco debil…

  • Posted by Kung.Fu.Panda

    The data observed in your chart are what one would expect to see when comparing an emerging market to a mature, saturated market for vehicles like the US. The excessive focus on the US market by the global auto industry has been detrimental to the industry, I think. Designing affordable cars for emerging market consumers rather than pushing overpriced luxury cars into a stagnant developed market should be the rule.

  • Posted by johnve

    This has nothing to do with decoupling. Brazil has reduced their infaltion rate enormously. which has led to a reduction of interest rates in vehicle loans from 15% per month to a more reasonable rate of 6% per month. I live in Brazil and am American and when I tell my friends for the USA the interest rates for a car loan or credit card they are in shock. It is all about affordability, for brasilians it has been improving for the past 6 years but it is still much much more expensive than the US or EU. Imagine the market when a car loan is only! 5% a year.

  • Posted by johnve

    As a follow up …to buy a consumer product in BR you will pay about 13% a month. Credit cards for you average middle class person in BR is about 12% a month, not a year. 144% in comparison to a 22%/yr rate in US.

  • Posted by johnve

    What is ‘Muito Forte’ is that the country has gone through 5 currencies in 20 years and now has estabilished financial stability. And it has been done through the Asian model, exportation and the build up of foreign currency deposits. The decoupling for Brasil at this time will become dependent upon their ability to not rely on growth from Asia and the exporation of iron ore, soya, agricultural products.

  • Posted by Thomas

    7-year car leases, almost no money down. worst than it was in the US – where car sales went from 10 million a year to 20 million a year (now back to 10).

    after 4 years, your car is worth very little (particularly in Brazil) and your debt is still there.

    in brazil, cheerleaders say credit a a % of GDP is small (less than 50%) and has a lot of room to grow. it would, if the cost of servicing that debt each year wouldn’t be so high. because of the usury interest rates, brazilians pay 10% of GDP each year to service this debt – a ratio similar to the US!