Brazil Economic Outlook (1st Quarter 2015) / https://twitter.com/alpkanpaker
brazil economic outlook 1st quarter 2015 first brazil brasil brazilian economy balance of payments ease of doing business soveregin debt sovereign rating
2. OVERVIEW
► Brazil had a year of nearly zero growth combined with
high inflation.
(CPI in Mar 2015 = 8.1 %)
► The local currency market remains extremely fragile.
(USD/BRL = 3.02)
► Twin deficits + high-inflation + corruption scandal
= the risk of a credit rating downgrade.
► However, Brazil has US$360 bn fx reserves and it is
one of the world’s largest foreign holders of US
Treasury debt securities.
► Also, the shortage of water and electricity will reflect a
unfavorable effect in the short term.
Quick Facts
Population: 201 M
GDP: $2.4 T
5-year CAGR: 2.6%
GDP Per Capita: $12,221
Unemployment: 6.6%
Inflation (CPI): 8.1%
FDI Inflow: $64.0 bn
Public Debt: 66.3% of GDP
3. A serious corruption scandal involving Petrobras, which prompted a
sudden revision of a large-scale capital expenditures programme and
triggered massive anti-government demonstrations.
Financial Sector - The Brazilian financial sector remains structurally
sound, with adequate capitalization and asset quality. (NPL = 2.9 %)
OVERVIEW
Credit risks are modest, with aggressive
lending by public banks as the main
cause for concern.
4. EASE OF DOING BUSINESS
IN BRAZIL
Why?
• 200 M consumers with increased purchasing power
• US$2.4 T GDP in 2014
• Upper middle-income economy
• Companies have a competitive advantage in advanced
technologies and green/niche sectors.
Don’t look for “green” opportunities but use “green” to sell your products in every sector.
International companies face:
• High tariff & tax barriers
• Difficult customs system
• Heavy tax burden
• Legal system that is overloaded and often very
slow in enforcing business law
• Often lack of sufficient infrastructure
5. EASE OF DOING BUSINESS
IN BRAZIL
Main Opportunities
for International Companies:
40 M Brazilians have entered the middle class since 2002.
• Secure Investment Framework
• Huge Domestic Market
• Energy Powerhouse
• Major Infrastructure and Port & Airport Renewal
Projects
• Gateway to Latin America
6. All ratings that given from the rating
agencies still have "Investment Grade".
(S&P: Lowest Investment Grade)
SOVEREIGN CREDIT RATING OF BRAZIL
Based on the C/A Balance, as a % of short-term external debt
payments/gov. reserves, credit growth and financial openness.
► CDS rate increased to 300 bps between Sep 2014 and Mar 2015.
7. Brazil's main challenges:
Rising Int. Rates and CPI
Lower commodity Prices
Financial Difficulties
Growing Risk of Water and
Energy Shortages
Brazil current "selic"
(policy interest) rate:
12.75%
SOVEREIGN CREDIT RATING OF BRAZIL
8. SOVEREIGN DEBT OF BRAZIL
Brazilian Finance Minister Levy said on Wednesday (13 May) that he expected the country's economic
slowdown to be temporary and that fiscal discipline remained central.
9. BALANCE OF PAYMENTS OF BRAZIL
A current account deficit for 2014: 4.2% of GDP
(US$ 91bn)
Although there was no growth, Brazil has US$
11bn BoP surplus in 2014.
FDI no longer finances the entire current
account deficit.
Lower oil prices and the domestic recession to
compensate for the fall in export prices.
10. CONCLUSION
• The government could improve its fiscal policy prominently by promoting transparency, making a strong
effort to avoid in extreme spending, introducing reforms to fix the structural problems, and indicating the
route for further enhancement in the next years.
