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Brazil Business Forecast Report Q1 2015

  • October 2014
  • -
  • Business Monitor International
  • -
  • 55 pages

Core Views
Brazil’s economic recovery will falter in 2014, with real GDP growth coming in at just 0.7% in 2014. Fixed investment will remain weak in light of falling business confidence, while poor consumer confidence to constrain private consumption growth. We forecast a modest pick-up to 1.5% real GDP growth in 2015, but expect relatively slow private consumption growth and moderate investment will weigh on headline growth in the coming years. Elevated inflation will keep interest rates steady at 11.00% through end-2014, but the bank will switch its focus from reining in inflation to stimulating growth in 2015. As such, we forecast 100 basis points of rate cuts to 10.00% by end-2015.

T he widespread public protests that took place in June 2013 marked a turning point for the Brazilian electorate. Public unrest will continue flaring up intermittently until significant progress on promised reforms, including higher-quality public services and greater government transparency, begins to take shape. Brazil’s second-round presidential election is too close to call. President Dilma Rousseff is set to face off against Aécio Neves of the Partido da Social Democracia Brasileira on October 26. The election outcome will have a significant impact on the trajectory of economic policy, with Rousseff likely to maintain the status quo while Neves would return to more orthodox economic policies.

Major Forecast Changes
We have downgraded our 2014 and 2015 real GDP growth forecasts to 0.7% and 1.5% respectively. Fixed investment growth will be more subdued than we initially anticipated, as an electricity price spike in Q114 saw a number of businesses delay investment plans in H114. Moreover, weak business confidence will temper gross fixed capital formation into 2015.

Table Of Contents

Brazil Business Forecast Report Q1 2015
Executive Summary 5
Core Views..5
Major Forecast Changes.5
Key Risks To Outlook..5
Chapter 1: Political Outlook 7
SWOT Analysis. 7
BMI Political Risk Index.. 7
Domestic Politics 8
Economic Policy At A Crossroads Heading Into Second-Round Vote..8
Brazil's second-round presidential election on October 26 will be key to the country's economic policy trajectory, following an
inconclusive first-round vote on October 5. President Dilma Rousseff will face off against Aecio Neves of the Partido d a Social
Democracia Brasileira, whose victory would see a return to macroeconomic orthodoxy, a break from the current policy course.
TABLE: Political Overview8
Long-Term Political Outlook. 10
Economy To Dominate Policymaking.10
With Brazilian real GDP set for a period of more moder ate growth over the medium term, significant business environment challenges,
and growing competition for investment from Mexico, we believe that the economy will figure prominently on the country's policy agenda
over the medium term. In addition, with the PAC growth acceleration programme scheduled to end in 2014, the government will be
challenged to continue improving Brazil's social development metrics in order to provide the foundations for robust long-term growth.
Chapter 2: Economic Outlook. 13
SWOT Analysis.. 13
BMI Economic Risk Index 13
Economic Activity .. 14
Slow Growth Here To Stay..14
Brazil will remain mired in a period of low growth in the coming years, due to a slowing consumer story, persistent business environment
challenges, and a weaker external environment. A more substantial contraction in real GDP in Q214 than we anticipated has prompted
us to revise down our 2014 and 2015 headline growth forecasts.
TABLE: Economic Acti vit y14
Fiscal Policy. 15
Fiscal Consolidation Ahead, Neves Victory Would Spell More15
Brazil is poised for a period of modest fiscal consolidation beginning in 2015. Moreover, should opposition candidate Aecio Neves win
Brazil's second-round presidential election on October 26, this would likely result in a sharper narrowing of Brazil's fiscal shortfall than
we currently forecast.
TABLE: Fiscal Policy.16
Monetary Policy. 17
Opposition Victory Would Pose Upside Risks To Interest Rate Forecasts..17
We expect Brazilian monetary policy to loosen in 2015 as the central bank increasingly focuses on stimulating growth. However, with
the second round of Brazil's October presidential election set to be tightly contested and a change in government highly likely to result in
a more hawkish central bank, we explore the upside risks to our multiyear interest rate outlook.
TABLE: Monetar y Polic y..18
Balance Of Payments. 19
Eroding Goods Trade Surplus To Weigh On Current Account.19
Brazil's balance of payments position will weaken in the next few years. An erosion of the trade surplus will keep the current account
shortfall wide, while a less supportive external environment and a lack of domestic reform will temper financial inflows.
TABLE: Current Account.20
Exchange Rate Policy 22
BRL: Election Outcome Key To Pace Of Depreciation..22
Poor macroeconomic fundamentals and monetary easing will drive the Brazilian real to depreciate in the coming years. However, with
the second round of Brazil's presidential election too uncertain to call, we acknowledge upside risks to our forecasts stemming from an
opposition victory.
TABLE: Currency Forecast..22
TABLE: Exchange Rate22
Chapter 3: 10-Year Forecast. 25
The Brazilian Economy To 2023. 25
Q115: Days Of Easy Growth Are Gone25
Although substantial mineral wealth and one of Latin America's largest consumer bases will help keep investor interest rooted in Brazil
over the long term, the next 10 years will not be easy for the economy. Indeed, the consumer story is set for a period of slower growth in
the medium term while infrastructure bottlenecks and a substantial tax burden are likely to continue weighing on the country's business
environment.
TABLE: Long -Term Macroeconomic Forecasts 25
Chapter 4: Operational Risk. 29
Operational Risk Index. 29
Operational Risk .. 30
TABLE: Operational Risk..30
Transport Network .. 31
TABLE: Transport Network Risks..32
Economic Openness . 37
TABLE: Economic Openes ..37
TABLE: Top Five Products Exported38
TABLE: Top Five Trade Partners Product Imports 39
Chapter 5: Key Sectors.. 41
Oil and Gas 41
TABLE: Headline Forecasts..41
TABLE: Oil Production42
TABLE: Oil Production42
TABLE: Gas Production.44
TABLE: Gas Production.44
Infrastructure.. 46
TABLE: Construction And Infrastructure Industry Data47
TABLE: Construction And Infrastructure Industry Data48
Other Key Sectors 51
TABLE: Pharma Sector Key Indicatorts ..51
TABLE: Telecoms Sector Key Indicators 51
TABLE: Defence and Security Sector Key Indicators..52
TABLE: Food and Drink Sector Key Indicators.52
TABLE: Autos Sector Key Indicators.52
Chapter 6: BMI Global Assumptions.. 53
Global Outlook 53
Big Emerging Market Revisions.53
Table : Global Assumptions .53
Table: Developed States, Real GDP GrowtH, %..54
Table : BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %.. 54
Table : Emerging Markets , Real GDP Growth , %.55

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