Roubini Says Brazil Real Overvalued, Structural Changes Needed

New York University professor Nouriel Roubini, who predicted the financial crisis in 2006, said Brazil’s currency is overvalued and the country’s economic outlook depends on its capacity to pass new laws.

Brazil’s economy can grow more than 6 percent a year if the government makes structural changes to education and infrastructure that President Luiz Inacio Lula da Silva has failed to push through, Roubini said yesterday in New York. The country won’t be able to grow more than 4.5 percent annually if it doesn’t approve legislation, he said.

The real has advanced 30 percent this year, making it the best performer among 26 emerging-market currencies tracked by Bloomberg. The currency fell to the lowest level in 11 weeks yesterday as concern the global economic rebound will stall spurred losses in stocks, commodities and other riskier assets.

“There’s too much euphoria about Brazil,” Roubini said yesterday at an event in New York. “There’s probably too much capital inflow to the country. The strengthening of the currency is too strong on the basis of the long-term fundamentals.”

Brazil’s economy will grow 5.03 percent in 2010, according to a Dec. 11 central bank survey of 100 economists. The survey said gross domestic product will shrink 0.26 percent this year.

“I’m positive on Brazil, but not as euphoric,” Roubini said. “If there’s an acceleration in reforms, the future is going to be bright.”

Roubini predicted in July 2006 the financial crisis that spurred more than $1.6 trillion of credit losses and asset writedowns at global financial companies.

Latin America

Roubini said yesterday that market-friendly countries in Latin America such as Brazil, Mexico, Colombia and Chile will lead the region in economic growth. Countries such as Argentina, Ecuador, Venezuela and Bolivia will trail behind, he said.

Inflation in the region will remain under control and central banks will raise interest rates in the second half of next year, Roubini said. Economic growth in the region will be 3.8 percent next year, he said.

Worldwide macroeconomic conditions, company earnings and economic growth are going to be worse than expected, he said, adding that risky assets are overpriced.

Most developed economies will experience an anemic recovery, as growth in consumer spending will be slower than growth in gross domestic product, Roubini said.