Brazil Business Forecast Report Q3 2014

May 12, 2014, 12:41 ET from ReportBuyer

LONDON, May 12, 2014 /PRNewswire/ -- has added a new market research report:

Brazil Business Forecast Report Q3 2014

Core Views

With persistent currency weakness and rising interest rates set to temper private consumption growth, and fixed investment to receive only a moderate boost from the June 2014 FIFA World Cup and final year of the PAC II growth acceleration programme, we expect Brazil's economic recovery to falter this year. Indeed, we forecast
real GDP growth of 2.0% in 2014, down from 2.3% in 2013. Elevated inflation will keep interest rates high in the coming months, and we forecast one more rate hike to 11.25% before the central bank pauses. However, we maintain our view that the bank will switch focus from reining in inflation to stimulating growth by year-end, in
line with our end-2014 Selic rate forecast of 10.75%. While the widespread public protests begun in June have largely subsided, we believe that this marked a turning point for the Brazilian electorate. As such, we anticipate that public unrest could flare up again should political progress on reforms stall. With President Dilma Rousseff the candidate best positioned to win the October 2014 presidential election, we anticipate that major reforms are likely to be limited in the coming years, implying a modest
reining in of expansionary fiscal policy and a continued piecemeal approach to improving the outlook for state-owned oil company Petrobras.

Major Forecast Changes

We have downgraded our 2014 real GDP growth forecast from 2.4%
to 2.0%, as the potential for a more significant increase in interest
rates than we initially anticipated, as well as persistent currency
weakness will temper real private consumption growth this year.
A continuation of the Banco Central do Brasil's aggressive monetary
tightening cycle saw us upgrade our short-term Selic rate target to
11.25%, implying 25 basis points of hikes from the current level. In
light of more significant rate hikes in the short term, we increased our
end-2014 interest rate forecast to 10.75%, from 10.50% previously.
Given a very weak start to 2014, and our view that downside pressures
on the Brazilian real will persist in the coming months, we
have revised our average and end-year exchange rate forecasts to
BRL2.400/USD and BRL2.450/USD respectively, from BRL2.350/
USD and BRL2.400/USD previously.
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 Ratings 7
Domestic Politics 8
Significant Reforms Unlikely Post Election 8
Given that President Dilma Rousseff looks set to win a second presidential term in Brazil's October 2014 election, we do not expect
major reforms to follow. Indeed, a more dynamic reform drive would require a significantly weakened mandate for Rousseff or an
opposition victory, both of which we believe are unlikely.
TABLE: Political Overview 8
Long-Term Political Outlook 12
Economy To Dominate Policymaking 12
With Brazilian real GDP set for a period of more moderate 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 15
SWOT Analysis 15
BMI Economic Risk Ratings 15
Economic Activity 16
Weaker Consumer To See Economic Recovery Falter 16
We believe that Brazil's economic recovery will falter this year, and are revising down our 2014 real GDP growth forecast from 2.4% to
2.0%, below our 2013 estimate of 2.3% growth. Indeed, further monetary tightening, significant exchange rate weakness and ongoing
project delays in the infrastructure sector will negatively impact both the private consumption and fixed investment components,
weighing on headline growth.
Fiscal Policy 18
Nominal Fiscal Deficit To Remain Substantial 18
We expect that a continued pick-up in revenue growth will prevent further deterioration in Brazil's fiscal accounts this year, even as
spending picks up moderately. As such, we forecast Brazil's nominal fiscal shortfall to come in at 3.3% of GDP this year, in line with the
2013 print. Moreover, with the government likely to rein in spending in following the October 2014 general election, we forecast modest
fiscal consolidation beginning in 2015.
Monetary Policy 20
BCB's Hiking Cycle Coming To An End 20
With the benchmark Selic target rate standing at 11.00%, we believe that the Banco Central do Brasil will enact one more 25 basis
points rate hike to 11.25% before ending the monetary tightening cycle, which began in April 2013. Indeed, we expect that the bank will
increasingly shift its focus from tempering inflation to stimulating growth in the coming months, in line with our end-2014 interest rate
forecast of 10.75%. However, we note upside risks to this view should supply-side price pressures send headline inflation significantly
higher in the coming months.
Balance Of Payments 22
Current Account Deterioration Not Over Yet 22
With import growth set to continue outpacing export growth, we anticipate a further widening of Brazil's current account shortfall this
year to 4.2% of GDP, from 3.6% in 2013. While the current account deficit will remain relatively well covered by the financial account
surplus, we expect that the financial account will remain off its recent highs, as portfolio inflows moderate on the back of rising yields in
developed markets, and foreign direct investment is negatively impacted by a slower medium-term growth story in Brazil.
Exchange Rate Policy 24
BRL: Moderate Weakness Ahead 24
TABLE: BMI Bra zil Curency Forecast 24
Chapter 3: 10-Year Forecast 27
The Brazilian Economy To 2023 27
Days Of Easy Growth Are Gone 27
Although substantial mineral wealth and one of Latin America's largest consumer bases will 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
TABLE: Long -Term Macroeconomic Forecasts 27
Chapter 4: Business Environment 31
SWOT Analysis 31
BMI Business Environment Risk Ratings 31
Business Environment Outlook 32
Institutions 32
Table : BMI Busines And Operation Ris k Ratings 32
Infrastructure 33
Table : BMI Legal Framewor k Rating 33
Market Orientation 35
TABLE: Top Export Destinations , 2004-2011 (USDMN) 35
Operational Risk 36
Chapter 5: Key Sectors 39
Defence 39
TABLE: Defence Expenditure (2010-2017) 40
Freight Transport 42
TABLE: Air Freight , 2011-2018 43
TABLE: Rail Freight , 2011-2018 43
TABLE: Martime Freight , 2011-2018 44
Other Key Sectors 45
table : Autos Sector Key Indicators 45
table : Oil & Gas Sector Key Indicators 45
table : Pharma CEUTICALS & HEALTHCARE Sector Key Indicators 45
table : Food & Drin k Sector Key Indicators 46
table : Telecoms Sector Key Indicators 46
Chapter 6: BMI Global Assumptions 47
Global Outlook 47
Chinese Economy Under Pressure 47
Table : Global Assumptions 47
Table : Developed States , Real GDP Growt H, % 48
Table : Emerging Mar kets , Real GDP Growth , % 49

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Brazil Business Forecast Report Q3 2014

For more information:
Sarah Smith
Research Advisor at
Tel: +44 208 816 85 48

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