To the great annoyance of longtime Brazil analysts, presentations on Brazil inevitably tend to start with the cutting remark generally ascribed (probably incorrectly) to French President General Charles de Gaulle: “Brazil is the country of the future and always will be”.

With the World Cup kicking off shortly, and the Olympics to be held in Rio in summer 2016, Brazil’s historic moment appears at last to have arrived. Perhaps it has. Brazil is already showing a natural showman’s ability to ratchet up the suspense.

Leaving venue construction to the last possible moment is only one element in this high-wire act. Brazil is also teetering on the edge of an economic precipice. S&P recently downgraded the country’s sovereign bonds to BBB minus, one step above junk. A Brazilian property bubble – a 414 percent increase in property prices over the past 10 years – exceeds even the pre-crisis house-price run-ups in the US (+92%), Ireland (+287%), and Spain (+193%). (See chart below.)

Brazil property

Brazil got itself into this position by pursuing rapid economic growth without taking the hard decisions necessary to make this growth sustainable. The Brazilian political system tends to protect vested interests, including labour unions, big businesses, government employees, and agricultural landlords. As a result, Brazilian policy tends to be twisted in favour of these interests, and reforms are badly needed (and always ongoing) in areas including public pensions, labour law, and taxation.

The result is a business environment that is relatively hostile to small businesses – Brazil ranks not even among the top 100 countries in the World Bank’s Ease of Doing Business Index – but favourable to well-connected big businesses. This tends to limit investment. Would-be entrepreneurs are discouraged from investing in startups, and large Brazilian companies, secure in their market positions, have little need to invest to stay ahead of competition.

Over the past decade, Chinese resource purchases have resulted in a flood of money into Brazil. Initially, this was all to the good: industrial production rose between 2003 and 2008. After the global financial crisis, however, Chinese and global demand slowed, but Brazil was not interested in slowing.

Fiscal stimulus was unleashed, and interest rates cut – even when inflation was accelerating towards the upper limit of the government’s inflation target band. State-owned financial institution stepped in to provide mortgages when the private sector pulled back.

This had predictable results. Consumer spending has skyrocketed. Retail sales more than doubled between 2003 and 2013. Consumer credit has soared; so have imports, wages and house prices. By contrast, business investment outside the resource sector has failed to ignite. Industrial production, after rising for years, stagnated from 2008 on, producing unbalanced credit- and consumption-fuelled growth.

Brazil’s exports are now even more heavily weighted to natural resources than they were ten years ago, as other sectors have lost competitiveness. Brazilian households now spend almost 22 percent of their incomes servicing debt, which is higher than the percentage of income spent by US households (19 percent) prior to the global financial crisis.

But is Brazil in a bubble, and headed for a crash? The classic symptoms are certainly there. Inflation, and not just of house prices, is at worrying levels. But so far, rather than appearing reckless, the Brazilian government seems canny.

Brazilian government debt remains comfortably low, below 60 percent of GDP, and foreign-exchange reserves ample. Brazil remains, by some measures, a net creditor to the world, although it is determined to push as far as it can: according to the Financial Times, recent foreign-exchange swap activity has taken Brazil to the edge of net debtor status.

The markets do not like this kind of macroeconomic management. Every time Brazilian president Dilma Rousseff does badly in the polls, the Brazilian stockmarket climbs. Her treatment of Petrobras, the state-owned oil company, has attracted particular criticism, as she has raided the company for revenues. But once again, this appears to be ruthless rather than reckless: Rousseff is a former energy minister who presumably knows just how far she can push the company, and she appears determined to push exactly that far.

Overall, the impression is of a government determined to eke out every possible near-term boost to economic activity. The rating downgrade was a rare misstep: spending cuts were announced, presumably calculated to be just enough to preserve the rating. S&P evidently was not impressed and downgraded the country anyway.

It was a rare wobble. Brazil is, so far, walking its tightrope with confidence. Presumably a rebound in the US and Europe will replace lost demand from China, and the World Cup will offer a further confidence boost, offering Brazil a chance to grow out of its bubbles and over-borrowing.

Still, as Brazil’s moment in the global spotlight arrives, with elections coming in October, it would be a bad time to lose one’s footing.