2012-11-14 22:20:55 - Brazil Business Forecast Report Q4 2012 - a new country guide report on companiesandmarkets.com

Blessed with favourable demographics, a large consumer base and a wealth of natural resources, Brazil offers some of the most exciting investment opportunities globally. We have long highlighted a number of structural economic imbalances in Brazil´s economy, including a very strong consumer and a weak manufacturing sector.

Our core view is for these imbalances to unwind over the next few years, resulting in slower growth and a period of painful consumer deleveraging. As such, we forecast real GDP growth of 2.4% in 2012 and 3.7% in 2013. Significant policy concerns remain. We question whether the government is doing enough to remove itself from the economy, and we are not yet seeing sufficient evidence that the authorities are following through on their

 

 

promise of fiscal consolidation. Brazil´s investment outlook will be shaped by the twin factors of the government-led growth acceleration programme and the upcoming World Cup and Olympic Games. We identify infrastructure and energy as the sectors best poised to benefit.

Major Forecast Changes

We have downgraded our 2012 real GDP growth forecast from 3.9% to 2.4%, as we believe Brazil´s structural economic imbalances are beginning to unwind sooner than we initially expected. While substantial fiscal and monetary stimulus will bolster growth in late 2012 and early 2013, reduced purchasing power and high household debt burdens mean that a return to growth will be more modest than we previously expected. We have revised down our 2012 Selic rate forecast to 7.75%, from a previous projection of 8.0%, to reflect a more aggressive easing cycle and a concerted attempt by the central bank to bring down Brazil´s restrictively high interest rates.

Key Risks To Outlook

Downside Risks To Growth Forecast: While we are belowconsensus on growth for 2012, should substantial monetary and fiscal stimulus implemented since Q311 and slowing global growth translate into weak domestic demand later this year, our 2.4% growth forecast for 2012 may be too bullish

Downside Risks To Interest Rate Forecast: We currently see another 25 basis point cut to the benchmark Selic rate before yearend. However, should inflation continue to decline and the domestic and external growth outlooks weaken further, the authorities may prolong their aggressive easing cycle, meaning the benchmark rate could fall below our end-2012 forecast of 7.75%.

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