BMI View: Despite a subdued outlook for Brazil's economy, we expect steady increases in mining and agricultural output will ensure tepid growth in freight volumes in the coming years. We caution that a more robust expansion will be prevented by a slowdown in the consumer sector, weak global commodities and a lacklustre external picture. As a result, we expect the road and rail sector will display the largest gains vis-a-vis airfreight.
The Brazilian economy will enter recession in 2015, for the first time in six years. We are currently forecasting real GDP to contract by 1.7% this year, before returning to growth of 0.6% in 2016. These forecasts are below Bloomberg consensus estimates for a 1.0% contraction in 2015 and growth of 1.2% in 2016. Major headwinds to private consumption and a slow resolution of the corruption scandal at national oil company Petrobras will be the primary driver of the slowdown, with unemployment reaching ten year highs and the country's investment attractiveness significantly deteriorated.
Nevertheless, outlook for trade is supportive for the freight sector, as despite lower prices, demand levels for grains and mining output remain elevated. This will ensure positive growth in each of the freight modes. Mining production will increase by 1.0% this year, according to our mining team. Looking forward, production will expand at a more rapid pace from 2016 onward, growing at an annual average of 3.75% between 2016 and 2019.
Road freight will be the dominant freight sector in 2015, accounting for 78% of the total mix, marking a continuation of dynamics over the past five years. Given the size and terrain of the country and limited development in the air and rail networks, the road network has presented the main transport option. Road dominance will in the coming years despite subdued economic growth, as even though a drop off in private consumption will reduce demand for freighted consumer goods, the lack of alternative options will see road continue to be heavily utilised.
Volumes transported on Brazil's rail freight network will also grow at a moderate pace in 2015, thanks to steady but slowing output in the heavy industry sector. We anticipate growth at 2.3%, which if realised would see 475.7mn tonnes transported by rail this year, a consolidation of 2014's return to growth of 3.2% after 2013's contraction of 2.0%. The majority of railway network capacity will be used to transport mining and agricultural products, for example iron ore and soybeans, from the interior of Brazil to major seaports for export. Rail freight will also maintain its portion of the total freight mix in 2015, at 21.9%, a meagre increase from 2014, when it accounted for 21.8% of the total freight pie.
Air freight will account for just 0.05% of total freight carried in 2015, due to the country's heavy industry trade focus, depressed consumer demand for high value goods generally freighted by air and limited historical investment in the sector. Similarly, we do not expect any major changes in the coming years as a combination of the scandal ridden private sector and stagnating economic growth has pressed the pause button on infrastructure development.
Key BMI Forecasts
Air freight tonnes to grow 0.91% in 2015 to reach 1.05mn tonnes. Over the medium term, to 2019, we predict that growth will average 2.3% a year.
Rail freight tonnes to grow by 2.3% in 2015 to reach 475.7mn tonnes. To 2019, we predict average annual growth of 2.1%.
Road freight tonnes grow sideways in 2015 to reach 1.7mn tonnes, the same as in 2014. To 2019, we predict average annual growth of 1.7%.