It was supposed to be Brazil’s year. As hosts of the 2014 FIFA Football World Cup, the first time the tournament had been held in the country since 1950, Brazil had high hopes of winning its sixth championship title on home turf. But the country's beloved football team embarrassed themselves by losing 7-1 to Germany at the semi-final stage, the largest defeat suffered by a host country in World Cup history.

And Brazil’s run of bad luck is not just consigned to football. The country has been facing a prolonged slowdown in industrial output, while job creation is at its slowest since 1999. Overall, according to most recent forecasts released by the country's government, the economy will grow at a meagre 1.8% in 2014, three times slower than had been projected. The estimated $14bn pumped into the country's economy in the build-up to the World Cup does not seem to have had much impact on growth.


Why the slowdown?

Economists point to a combination of factors to explain why Brazil has lost its mojo. “We have been watching increasing signs of exhaustion of the growth model based on domestic consumption and the country was not able to develop successful strategies to adjust its growth model to rely less on it,” says Enestor Dos Santos, a specialist in emerging markets and principal economist at Spanish bank BBVA.

Household debt, as Mr Dos Santos points out, at 46% of income is more than twice what it was in 2005 and many Brazilians have moved from the first wave of consumerism during Luiz Inácio Lula da Silva’s presidency, to paying off their debts. At the same time, the base of those who can make the leap to the middle class, and thus to bigger consumerism needs, has shrunk.

“Brazil already has a very low unemployment rate and that leaves practically no room for expansion similar to that observed a couple of years ago,” says Mr Dos Santos.

What is more, the strength of Brazil’s currency, the real, made spending money overseas more attractive for many wealthier Brazilians. “Brazilians, instead of consuming domestically, started travelling to Miami, to Orlando, started buying properties in Florida,” says Eugenio J Alemán, director and senior economist at US bank Wells Fargo.

Additionally, measures introduced by Dilma Rousseff after she replaced Mr da Silva as president in 2011 were poorly received by investors, says Mr Alemán. “[The Rousseff] administration started to rein in more of the economy, compared with her predecessor. There were many measures introduced to prevent importation to the country. This is not something the market likes to see,” he says.

Ailing growth among Brazil's biggest trading partners does not help either. “World growth has lost its momentum in recent years and the prices of products that Brazil exports, such as raw materials, are not as high now as they were,” says Mr Dos Santos.

Slowing momentum

Is it possible that Brazil, only recently a star economic performer on the world stage, with its population of nearly 200 million and abundant commodities, has completely lost its swagger? “The growth was slow recently, but it does not mean that the country is not able to regain its momentum. Brazil still has huge potential, but in order to release it it has to make effort in that direction,” says Jurgen Weller, officer in charge of the economic development division of the UN Economic Commission for Latin America and the Caribbean.

BBVA's Mr Dos Santos agrees: “It is very important to start to discuss again the introduction of economic reforms to drive up productivity and long-term growth.”

Experts from global consultancy McKinsey point to a number of issues Brazil needs to address if it is to restore its growth and competitiveness. According to Brazil's Path to Inclusive Growth, a report published by McKinsey in May, the areas that require the most immediate action are making the public sector more productive and transparent, increasing workforce quality, boosting innovation and investment into research and development, and reorienting trade policy to integrate more closely with major markets.

Regional leader

Yet investors still have their sights set on Brazil, data from crossborder investments tracker fDi Markets shows, even if the country has lost some of its shine. In 2013, Brazil attracted 363 greenfield ventures, and although that is far below 2011’s record 525 projects, it is still better than at any given year before 2008 and the global financial crisis. And even with its FDI numbers in decline, Brazil remains a regional leader, landing more investments than Colombia, Chile and Argentina, its closest competitors among top FDI destinations on the continent, combined.

Data regarding mergers and acquisitions looks even more positive. According to the recent findings by analytics firm S&P Capital IQ, the value of M&A in Brazil in the first six months of 2014 has already reached 72% of 2013’s total, and the two top deals of this year are higher than any deal recorded in 2013. “If we are talking about an M&A rebound, Brazil seems to have already done it,” says Pavle Sabic, financial risk manager at S&P Capital IQ.

This is good news for Ms Rousseff ahead of October’s general elections. Yet, the results may do little to secure her a second term, especially given that Brazil’s economy entered recession at the end of August for the first time in five years. Ms Rousseff will face Aécio Neves of the centrist Brazilian Social Democracy party in a run-off in late October, and a tight contest is widely being predicted.

Brazil's national football team already has a new coach, appointed in the aftermath of its humiliating defeat by Germany. This may not be the only top job in the country that will see a change in 2014.

Additional reporting by Qingqing Chen.