-Economists had expected Brazil to rebound as in 2009

-Structural reforms, not stimulus now needed in Brazil

-No bursting credit bubble, but credit-led growth over

By Brian Asher

RIO DE JANEIRO--Economists greatly underestimated the effects the European crisis would have on Brazil's economy, said Carlos Langoni, director of the World Economy Center at the Getulio Vargas Foundation, speaking Friday on the sidelines of an event in Rio de Janeiro.

"We overlooked the effect international uncertainty would have on investments here," said Mr. Langoni.

In the first quarter this year, investments fell to just 16% of Brazilian gross domestic product, a 2% decrease.

Reflecting both the decrease in investments and the disappointing performance of the agricultural sector in a year marked by heavy rains, Brazil's GDP grew by just 0.2% in the first quarter, and economists now predict growth of just 2.18% this year.

Mr. Langoni noted that predictions of 3.5% growth at the beginning of the year were based on expectations of an economic recovery similar to that of 2009, when Brazil was able to quickly accelerate economic activity and grow at a torrid 7.3% pace in 2010.

"In 2009, the government and central bank were able to quickly inject liquidity and return the economy to rapid growth. China and India were a counterweight to the struggling developed economies in 2009, but now we're seeing the effects of a slowdown in China," said Mr. Langoni.

The international crisis has damaged an already unfavorable investment climate in Brazil, according to Mr. Langoni.

Among various disadvantages Brazilian businesses face, from obsolete infrastructure to a lack of skilled labor, Brazil's tax code is the biggest obstacle to investment in the country, said Mr. Langoni.

"The tax burden on new investments is 20%, twice as high as that of China."

Mr. Langoni remarked that an acceleration in growth in the second half of this year will be helped slightly by government stimulus measures, but questioned the overall effectiveness of the programs.

"The stimulus measures taken by the government are too specific and isolated to have a large effect on the economy as a whole. They'll stimulate some consumption and investment on the margin, but that haven't restored the confidence of consumers and investors in the business climate."

To combat the economic slowdown, the Brazilian government has unveiled a series of tax breaks and public-investment programs, mostly aimed at stoking consumption. The seventh such stimulus plan, announced Wednesday, is a government-spending program of 8.5 billion reais ($4.2 billion).

Asked whether Brazil had a consumer-credit bubble, Mr. Langoni said he was confident in the safety of Brazil's financial system, but that credit growth would have to slow.

"Brazilian banks are strong and well-capitalized, so the most recent credit data is not an alarm but a yellow light," said Mr. Langoni.

Overall credit in Brazil grew by 18% in the 12 months to May, and 6% of all loans are now at least 90 days overdue.

Mr. Langoni's comments were made following an event organized by the Getulio Vargas Foundation in Rio de Janeiro. The event brought together economists from academia, banks, ratings agencies and the public sector to discuss the euro-zone crisis and Brazil's economic outlook.

Write to Brian Asher at brian.asher@dowjones.com