Brazil Country Risk Report

Published 28 January 2015 | Quarterly

  • 58 pages
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  • Includes 3 free updated quarterly reports
 
$1,195.00
Brazil Country Risk Report

Core Views

  • Brazil is on the cusp of an economic policy shift, with the appointment of an investor-friendly finance minister set to reverse the fiscal deterioration seen in the last few years and the central bank more strongly committed to reining in inflation. That said, these shifts will be slow to translate into stronger real GDP growth in light of a number of domestic and external headwinds.

  • We see little upside for Brazilian real GDP growth in the next few years, with growth set to accelerate to just 0.6% in 2015 and 1.3% in 2016, from an estimated 0.2% in 2014. Fixed investment will remain tepid in light of poor business confidence and a relatively weak business environment. Meanwhile, a deteriorating labour market and weak consumer confidence will constrain household consumption.

  • A greater commitment to tackling inflation will see the central bank hike the benchmark Selic target rate by 75 basis points (bps) to 12.50% by end-2015. This will bolster the bank's inflation fighting credentials but will not succeed in bringing headline inflation back to the midpoint of the Banco Central do Brasil's tolerance range (4.5% year-on-year).

  • The widespread public protests that took place in June 2013 marked a turning point for the Brazilian electorate. Public unrest will flare up intermittently until significant progress on promised reforms, including higher-quality public services and greater government transparency, begins to take shape.

Major Forecast Changes

  • We have downgraded our 2015 and 2016 real GDP growth forecasts to 0.6% and 1.3% respectively. Fixed investment growth will be more subdued than we initially anticipated, as business confidence will remain weak following the re-election of President Dilma Rousseff in October 2014. In addition, rising interest rates will limit consumers' take-up of credit, weighing on household spending.

  • We revised our nominal budget deficit forecast to 5.0% of GDP, from 4.0% previously, following significant...

Table of Contents

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 Reforms Ahead, Structural Improvements Out Of Reach
8
Brazilian policymakers are beginning to move in a more investor-friendly direction, but economic reform will be hindered by deep
Brazilian policymakers are beginning to move in a more investor-friendly direction, but economic reform will be hindered by deep
divisions within the ruling Partido dos Trabalhadores and considerable legislative fragmentation
Table: POLITICAL OVERVIEW
8
Table: Refor ms Taken And Hop ed For Results
9
Long-Term Political Outlook
10
Economy To Dominate Policymaking
10
Stimulating Brazil's stagnating economy will figure prominently on the policy agenda during President Dilma Rousseff's second term
In addition, the end of the PAC growth acceleration programme will challenge the government to continue improving Brazil's social
In addition, the end of the PAC growth acceleration programme will challenge the government 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
Anaemic Growth To Persist
14
In light of a poor business environment, weak consumer confidence and a lacklustre external environment, there is little upside for
In light of a poor business environment, weak consumer confidence and a lacklustre external environment, there is little upside for
Brazilian real GDP growth in the next several years
Table: GDP By Expenditur e
14
Fiscal Policy
16
New Economic Team To Reverse Fiscal Deterioration
16
Brazil's new economic team will begin to consolidate the government's fiscal accounts in 2015, following years of deterioration
Table: Fisc al Policy
16
Monetary Policy
18
Elevated Inflation To Prompt Further Rate Hikes
18
Additional interest rate hikes are on the cards in Brazil in 2015, as the Banco Central do Brasil seeks to rein in price growth and temper
Additional interest rate hikes are on the cards in Brazil in 2015, as the Banco Central do Brasil seeks to rein in price growth and temper
inflation expectations
Table: Monetary Policy
18
Lower Oil Prices Offer Limited Respite For Current Account
19
A widening goodss trade shortfall will drag Brazil's current account further into deficit in 2015
Stronger goods and services exports will
help to narrow the external account deficit thereafter, but more moderate crude oil production and exports than we previously anticipated
help to narrow the external account deficit thereafter, but more moderate crude oil production and exports than we previously anticipated
will temper the pace of improvement
Table: Current Account
20
Exchange Rate Policy
21
BRL: Sustained Depreciation In 2015
21
Weak growth and balance of payments dynamics, as well as an ongoing rally in the US dollar, will drive further depreciation in the
Weak growth and balance of payments dynamics, as well as an ongoing rally in the US dollar, will drive further depreciation in the
Brazilian real in the coming quarters
Table: Exch ange Rate
21
Table: Cur ency For ecast
22
Chapter 3: 10-Year Forecast
25
The Brazilian Economy To 2024
25
Q215: Days Of Easy Growth Are Gone
25
Substantial mineral wealth and one of Latin America's largest consumer bases will help keep investor interest rooted in Brazil over
Substantial mineral wealth and one of Latin America's largest consumer bases will help keep investor interest rooted in Brazil over
the long term, but the next 10 years will not be easy for the economy
The consumer story is set for a period of slower growth while
infrastructure bottlenecks and a substantial tax burden will weigh on the country's business environment
Table: Long-Term Macroeconomic Forecasts
25
Chapter 4: Operational Risk
29
SWOT Analysis
29
Operational Risk Index
29
Operational Risk
30
Table: Operational Ris k
30
Availability Of Labour
31
Table: LATIN AME RICA - AVAILABILITY OF LABOUR RISK
32
Table: TOP 10 SOURCE COUNTRIES FOR MIGRANT WORKERS
35
Crime Risk
36
Table: Latin America - Crime Risk
36
Table: Crime Statistics
37
Chapter 5: Key Sectors
41
Autos
41
Table: Autos Total Market - Historical Data And Forecasts
41
Food & Drink
45
Table: Food Consumption Indicators - Historical Data & For ecasts
46
Table: Hot Drink Value/Volume Sales, Production & Trade - Historic al Data & Forecasts
48
Other Key Sectors
51
Table: Oil & Gas Sector Key Indicators
51
Table: Pharmaceutic als & healthc are Sector Key Indicators
51
Table: Infrastructure Sector Key Indicators
51
table: Telecoms Sector Key Indicators
52
Table: Defence & Security Sector Key Indicators
52
Table: Freight Key Indicators
52
Chapter 6: BMI Global Assumptions
53
Global Outlook
53
New Era For Oil
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

The Brazil Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Brazil. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Brazil's economic, political and financial prospects through end-2019, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of Brazil's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Brazil's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in Brazil, including currency volatility, the commodity price boom and protectionist policies.

The Brazil Country Risk Report by Business Monitor International (BMI) includes four major sections: Economic Outlook, Political Outlook, Operational Risk and Key Sector Outlook.

Economic Outlook:

How will the Brazil' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for Brazil through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Brazil Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Brazil and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Brazil, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Brazil over the next 5-years?

BMI's Brazil country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Brazil Market - Political Strengths, Weaknesses, Opportunities and Threats facing Brazil.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Brazil's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of Brazil’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark Brazil's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in Brazil?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Brazil against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:

  • Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
  • Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
  • Evaluate Brazil’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.

Key Sector Outlook*

Which industry sectors in Brazil will grow fastest, and where are the major investment opportunities in the market?

BMI identifies investment opportunities in Brazil's high growth industries including automotives, defence & security, food & drink, freight transport, infrastructure, oil & gas, pharmaceuticals & healthcare and telecommunications & IT.

Key Areas Covered:

  • Market Overview - Size and value of each industry, including recent sector developments and major industry key performance indicators (KPIs) that have impacted company performance.
  • 5-year Industry Forecasts - Forecasts for each year over 2015-2019, using BMI's proprietary industry modelling technique, which incorporates key domestic and international indicators - including economic growth, interest rates, exchange rate outlook, commodity prices and demographic trends - to provide fully integrated forecasts across and within each industry.
  • Demand- and Supply-Side Data/Forecasts - BMI's industry data covers both the output of each industry and the domestic demand, offering clear analysis of anticipated import/export trends, as well as capacity growth within each industry.

Key Benefits

  • Target strategic opportunities in high growth industries, which are benefiting from global mega trends, and thus offer strong investment and growth opportunities.
  • Compare the growth path of different industries to identify which are best placed to benefit from domestic and international economic prospects, and which have historically suffered from volatile growth trends - a key indicator of future risks.

*Not all Country Reports contain the Key Sector Outlook chapter. Please enquire above for more information.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express