G100 Brasil - Business and Economic Development Studies Group

Latin America - español

Brazil - Português

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Nov 17, 2015, 08:47 ET

SAO PAULO, Nov. 17, 2015 /PRNewswire/ -- ANALYSIS – G100 Economic Consensus Meeting (RCE G100 Reuniao de Consenso Economico) - According to the G100, International Studies Group (Nucleo de Estudos Internacional), which in Brazil is made up of 100 active and appointed Members (Shareholders, Presidents and CEOs), plus 20 additional Members (Chief Economists and Financial Specialists), the recession is getting deeper in tandem with the lack of solutions emerging from the political domain to expedite economic adjustment measures. On the short-term horizon, there are no prospects of overcoming current difficulties, which will extend into next year, amplified by the paralysis of decision making.

This situation does not necessarily translate into a loss in the level of investment because, in comparison with other Latin American countries, Brazil still exhibits relative stability, although it is acknowledged that the central government's ability to achieve a minimal political settlement has been compromised until 2017. Although the Brazilian economy is large and diversified, presenting a comfortable level of international reserves, the decline is gradual, and active debt should come to 70% of GDP within the next year. For each dollar of debt, Brazil has 4 dollars in reserves. Compared to countries such as Paraguay and Turkey, the Brazilian situation is still favorable. Downgrading would occur if the deterioration of the economic outlook persists without expectations of a future reversal. The poor economic performance can be explained by a convergence of factors such as negative expectations on the part of businesses and consumers, worsening inflation, the rapid, sharp foreign currency devaluation, high real interest rates and the political incapacity to present a convincing proposal to bring about a comprehensive and sustainable fix to the current fiscal turmoil.

As for business, industrial performance continues to be weak, above all in processing and construction. Services are also exhibiting declining results. The sources of greatest dynamism are associated with agriculture, mining and a handful of export products.

With regard to exchange rates, the process of "controlled devaluation" is expected to continue, always confronted by a possible rise in U.S. interest rates. As a result, the expectation of high volatility threatens companies with debt indexed to the dollar through uncontracted hedge instruments.

Recent surveys of Brazil Members generated the following estimates:

BRAZIL
GDP 2015: -2.90% | 2016: -1.67% | 2017: 0.56%
Exchange Rate (US$) 2015: R$ 3.94 | 2016: R$ 4.05 | 2017: R$ 4.17
Interest Rate (SELIC) 2015: 14.25% | 2016: 13.00% | 2017: 11.50%
Inflation 2015: 9.84% | 2016: 7.29% | 2017: 5.99%