Brazil has made huge economic gains in the past few decades, but this growth is now threatening to grind to a halt. Further progress rests on the country's ability to reform and tackle key issues, such as its infrastructure deficit and poor public services.

Brazil’s 7-1 loss to Germany may disappoint the country’s football fans but it bodes well for October’s elections. It dispels any kind of World Cup effect from the voting, and forces the electorate to focus more on the issues. And there are a lot of issues.

Brazil has made great strides forward over the past two decades, allowing it to take pride of place in the BRICs club. But further development depends on it addressing a whole range of issues, from the poor state of the country’s infrastructure to its cumbersome labour laws, unaffordable public pensions, indexation of wages which pushes up costs, cronyism, and the poor state of public services such as health and education.

It was this last issue that led to the social protests in Brazil ahead of the World Cup on the basis that too much money was being spent on building football stadiums and too little on public services. In seeking re-election, president Dilma Rousseff was no doubt hoping that a Brazilian World Cup win would produce a feel-good factor in her favour and vindicate the decision of her Workers Party (PT) predecessor Luiz Inácio Lula da Silva to secure the event for Brazil.

Ms Rousseff remains the favourite to win, but the end of the football dream will put attention squarely on policy issues. The Brazilian economy is growing very slowly at between 1% and 2%, inflation is more than 6% and interest rates remain among the highest in the world.

Like many countries – the UK included – Brazil missed the opportunity to implement far-reaching reforms during the good times, so now has to do them in more difficult times or see growth suppressed for even longer. Has it got the will?

At a discussion organised by the Centre for the Study of Financial Innovation in London on the afternoon before the semi-final match, the UK's former ambassador to Brazil, Sir Peter Heap, emphasised the huge progress made by Brazil – in modernising its agriculture, the dynamism of its energy sector and the lifting of 40 million people out of poverty and into the middle class.

It is these kind of upwardly mobile people who are now complaining about the blockages in the way of them getting any further. But the FT’s former Brazil correspondent, Jonathan Wheatley, pointed out that it would be wrong to assume that they were asking for a liberal market economy.

In Brazil the huge role of the state has etched its way into the national psyche and the big dream of the ordinary person – apart from winning the World Cup – is to get a public sector job with a 70% pension. So it will surely require a far more dire economic situation before the government gets serious about the most painful reforms.

In this respect, Brazil could learn from Germany something much more important than footballing technique. Germany’s Agenda 2010 reforms of the labour market and social security – started in 2003 by then chancellor Gerhard Schroder – provide a rare example of a democracy carrying out reforms ahead of crunch time. 

Brian Caplen is the editor of The Banker.

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