The Brazilian EconomyBrazil is the 5th largest country in the world, in terms of area (about 8,547,404 square kilometers), about half of the South American territory, as well as population (just over 190 million people). It is the 15th largest world economy. Brazil is South America’s leading economic power and a regional leader, politically stable with historically friendly relations with all western countries. The country has large, well developed sectors. The most important are: Agriculture, mining, manufacturing, services and energy. Sao Paulo is a modern business center and the business capital of South America. Most of the industry and commerce is centered in Sao Paulo and the South of Brazil. Other important business centers are: Rio de Janeiro, important in the services sector and where most Brazilian (state and private) companies have their headquarters; Belo Horizonte, the capital of the biggest mining state (Minas Gerais) and is an important industrial center; and Brasilia, the Federal district, where the government seat. Brazil, Argentina, Paraguay and Uruguay formed the Southern Cone Common Market known as Mercosur in 1991. Brazil is the largest economy in the Mercosur group. In July 2006, Venezuela officially became a full member of Mercosur. Under the Mercosur treaty, tariffs between members are lowered gradually on most products and common external tariffs are applied to non-members. Mercosur represents a market of almost 250 million people with a combined GDP of more than US$1 trillion. Brazil is also an active member of the World Trade Organization, and pursues agricultural trade liberalization through the Cairns Group and the G20. Brazil's economy has shown real improvement in recent years - GDP grew by around 3.7 per cent in 2006 and is forecast to grow by 4.4 per cent in 2007. Industry has expanded strongly after recovering from the recession of 2003. Inflation registered at 6.9 per cent in 2005 (within the Central Bank's target of between 3 and 8 per cent), but was back to 4.2 per cent in 2006 and is forecast at 3.6 per cent in 2007. Recent IMF and OECD assessments of the Brazilian economy reflect positively on current policies and note lower levels of risk and higher levels of confidence as a result. The government has reduced public debt, and Brazilian authorities recently declined further IMF support. At the end of 2005, President Lula was able to repay the outstanding US$15.5 billion owed to the IMF ahead of time. Brazil has also repaid US$2.6 billion to creditors of the Paris Club. In February 2007, the Brazilian Government launched the Growth Acceleration Program (PAC) 2007-2010 which is an initiative to accelerate economic activity through increased public sector investment, particularly in infrastructure and social programs. World Trade Organization Cairns Group For a business forecast report and detailed outlook on the Brazilian economy, go to Report Buyer.com:brazil_business_forecast_report_q1_2009 Brazil Business Forecast Report Q1 2009 Publication Date: October 2008 ------------------------------------------- Summary: Brazils Fundamentals Tested By Global CrisisBrazil is among the best positioned economies in Latin America to weather the current financial storm and a rapidly deteriorating global macroeconomic outlook. In the Q109 Brazil Business Forecast Report we look at how the economy will be impacted by tighter liquidity conditions, and how the countrys economic policymakers and central bankers are acting to pre-empt a credit crisis on the ground. We have lowered our economic growth outlook for Brazil in 2009 on the back of fast slowing consumer credit growth, and expect the Banco Central do Brasil to abandon its monetary tightening cycle for the remainder of the year. Key to watch will be how volatile financial markets will affect investor risk sentiment and investment flows into Brazil. The ruling Partido dos Trabalhadores (PT), while gaining firm ground in Brazils local elections on October 5, failed to deliver a decisive victory that would have boosted prospects for a PT presidency beyond 2010. With re-runs approaching on October 26 (second-round voting in state capitals where candidates did not secure 50% of the vote in the first round), we see little room for a dramatic change in the partys fortunes. We believe that President Luiz Incio Lula da Silva will need to cough up more political capital to ensure that vital coalition allies agree to run with his with his seemingly preferred presidential candidate for the 2010 election, Dilma Rouseff (Lula has yet to publicly back Rouseff as his preferred choice). As the global growth outlook continues to deteriorate and heightened financial market volatility saw a decline in the value of the real, Brazils balance of payments dynamics are likely to undergo a considerable shake-up in 2009. Brazils current account made a decisive move into negative territory at the start of 2008 as strong domestic demand and the robust performance of the real have given way to a shrinking merchandise trade surplus. Moreover, rising foreign investment levels into Brazil over the years have led to larger investment income outflows on the back of reinvested earnings and dividend payments. Combined, this further pushed the countrys current account into deficit, widening to as much as US$20.6bn by August, the widest year-to-date current account shortfall since December 2001. Our forecast for a US$30.7bn (2.0% of GDP) current account deficit in 2008, therefore, remains firmly in place. According to BNamericas, the Brazilian telecoms regulator, Anatel, intends to carry out a public consultation in Braslia on October 16, to discuss proposed changes to the telecoms law. The reforms to the telecoms law would allow for greater mergers and acquisitions, including operators acquiring competitors holding licences in different parts of the country. Brazils mobile market continues to report strong net additions, with strong competition present across the country. Each area has at least three operators, with up to six in some regions. This competitive market regularly sees 3mn new subscribers each month. With the passing of the amendment in the telecoms law, competition is expected to be stronger as operators will try to hold on to their positions.
Publication Date: May 2008 ------------------------------------------- Summary: Investment Grade in 2008? The announcement by the Banco Central do Brasil (BCB) on February 21 that Brazil had finally become a net foreign creditor in January lends weight to our view that Latin America's previously largest debtor is set to attain investment grade status in 008 - a privilege up until now reserved for Chile, Mexico, Guatemala and now Peru in the Latin America region. For the first time in January, Brazil posted a negative net external debt figure (i.e. total international reserves exceeded total gross external debt) to the tune of some US$ bn, according to the central bank. This comes on the back of several years of moderating gross external debt growth in percentage of GDP terms, and a sharp rise in foreign currency inflows into Brazil. We currently expect Brazil's foreign reserves to continue rising over our forecast period (to US$ bn by 01 ), outstripping the country's foreign debt stock going forward. Using our in-house calculations, BMI projects that the nominal net external debt pile will continue to drop and average -2.8% of GDP over the five-year 2008-2012 period. Brazil's budget ministry announced that President Luiz Incio Lula da Silva plans to freeze some BRL19.4bn (US$11.4bn) in spending this year, in an effort to help the government address a fiscal gap in the 2008 budget, after the country's senate refused to extend the lucrative CPMF financial transactions tax earlier this year. However, Brazil's budget minister Paulo Bernardo has commented that the prospective cuts will not affect planned spending commitments to healthcare and the government's economic aid package known as the Growth Acceleration Programme (PAC). Moreover, rising interest rates mean that the public sector's debt servicing costs could yet increase. Interest payments of BRL15.4bn in February have already seen Brazil's 12-month nominal fiscal deficit widen to 2.04% of GDP (up from 1.99% in the previous month). While the move by Brazil's monetary policy committee (Copom) to begin its monetary tightening cycle on April 16 came as little surprise, the unanimous decision by the monetary policy council to hike its benchmark Selic rate by 0bps (as opposed to the bps we had been expecting) to 11.7 % suggests that the BCB is determined to reinforce its inflation-fighting credentials. Notwithstanding the slightly higher-than-expected uptick in consumer price inflation (CPI) in March to 4.73% y-o-y, Brazil's inflationary environment, in our view, remains benign for the time being. Latest data suggest that industrial capacity utilisation has declined in recent months, underpinning our outlook on inflation and our view that the BCB is seeking to anchor medium-term price expectations. Energy giant Petrleo Brasileiro (Petrobras) has begun producing 1 ,000 barrels per day at the Badejo field from its floating production, storage and offloading unit (FPSO) Cidade de Rio das Ostras. It will be the first project to exploit the extra heavy oil fields located off the Brazilian coast. Although the level of production is small it adds further upside potential to Brazil's already healthy production forecast. The FPSO will pump crude from the Siri reserve at the Badejo field in the Campos basin, the major petroleum production area in Brazil. It will serve as a pilot scheme for Petrobras to look at the viability of producing heavy crude from deepwater fields, in this case at a depth of 95 metres. It is planning to drill more wells at the site and install a larger platform on completion of the project's initial stage.
Publication Date: February 2008 ------------------------------------------- Summary: Fiscal Reform Loss, But Outlook Upbeat Brazil has consolidated its economic recovery, and real GDP growth continues to impress. We believe that the country's improving macroeconomic fundamentals will be supportive of higher rates of economic activity going forward, and as such, we project that the economy will expand by approximately 4 - 5% on an annual basis throughout the forecast period to 2012. Our projections are based on the vast improvement in terms of macroeconomic stability, which represents a departure from the more volatile economic cycles of the past, and we believe that Brazil will reach investment grade status in the next year or so. Having said that, breaking free from the economy's deeply embedded and rigid structural constraints will not be an easy task, although we believe that over the forecast period macroeconomic conditions will remain stable enough for the government to continue addressing these issues. While political reform is occurring slowly, the failure to extend the CPMF financial transactions tax struck a considerable blow to the coalition's political dominance and the country's fiscal accounts going forward. Brazil's political scene remains mixed, albeit with a positive outlook. On the one hand, the government has made significant advances in terms of political reform, with a recent ruling by the Supreme Federal Tribunal that is expected to consolidate government coalitions as well as political parties. However, the CMPF delivered something of a political body blow to the Lula camp, in our view, and marks the president's first major defeat since assuming power in 2003. Furthermore, corruption-related scandals continue to plague President Lula's government. The Brazilian economy recorded its 22nd consecutive quarter of uninterrupted economic expansion in Q307, posting robust outturns across most sectors of the economy. Key to the current growth cycle has been an expansionary monetary policy, which has provided a large impetus to private consumption and fixed capital formation, two main drivers of growth. Given that Brazil's macroeconomic fundamentals have significantly improved, we believe that the economy is poised to embark on a longer-term growth trajectory that will see it expand by approximately 4 -5% on an annual basis throughout the forecast period to 2012. However, a prolonged monetary policy pause in 2008 could act as a drag on growth. Brazil's score in our business environment ratings is at 4 8.9 (from 44 .5 in 2006), on the back of various improvements. Meanwhile, the country's ranking has also improved, rising 18 positions, to 71 (out of the 167 countries we cover) from 89 previously in 2006. Indeed, the business environment has benefited from sustained economic expansion and a vigorous reform-oriented political agenda. Considerable gains were made in the 'infrastructure category' which increased from 55 .3 in 2006 to 5 9.7 in 2007. That said, the score for Brazilian institutions has deteriorated somewhat to 4 1.7 from 42.3 on the back of worsening of the 'rule of law' and 'contract enforceability' categories.
|
