Brazil Business Forecast Report Q1 2015

Date: October 18, 2014
Pages: 55
US$ 1,195.00
Report type: Strategic Report
Delivery: E-mail Delivery (PDF), Download

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Brazil Business Forecast Report Q1 2015
Includes 3 FREE quarterly updates

Core Views

Brazil’s economic recovery will falter in 2014, with real GDP growth coming in at just 0.7% in 2014. Fixed investment will remain weak in light of falling business confidence, while poor consumer confidence to constrain private consumption growth. We forecast a modest pick-up to 1.5% real GDP growth in 2015, but expect relatively slow private consumption growth and moderate investment will weigh on headline growth in the coming years.

Elevated inflation will keep interest rates steady at 11.00% through end-2014, but the bank will switch its focus from reining in inflation to stimulating growth in 2015. As such, we forecast 100 basis points of rate cuts to 10.00% by end-2015.

The widespread public protests that took place in June 2013 marked a turning point for the Brazilian electorate. Public unrest will continue flaring up intermittently until significant progress on promised reforms, including higher-quality public services and greater government transparency, begins to take shape. Brazil’s second-round presidential election is too close to call. President Dilma Rousseff is set to face off against Aécio Neves of the Partido da Social Democracia Brasileira on October 26. The election outcome will have a significant impact on the trajectory of economic policy, with Rousseff likely to maintain the status quo while Neves would return to more orthodox economic policies.

Major Forecast Changes

We have downgraded our 2014 and 2015 real GDP growth forecasts to 0.7% and 1.5% respectively. Fixed investment growth will be more subdued than we initially anticipated, as an electricity price spike in Q114 saw a number of businesses delay investment plans in H114. Moreover, weak business confidence will temper gross fixed capital formation into 2015.
Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook


SWOT Analysis
BMI Political Risk Index
Domestic Politics
Economic Policy At A Crossroads Heading Into Second-Round Vote
Brazil's second-round presidential election on October 26 will be key to the country's economic policy trajectory, following an
inconclusive first-round vote on October 5. President Dilma Rousseff will face off against Aécio Neves of the Partido d a Social
Democracia Brasileira, whose victory would see a return to macroeconomic orthodoxy, a break from the current policy course.
  Table: Political Overview
Long-Term Political Outlook
Economy To Dominate Policymaking
With Brazilian real GDP set for a period of more moder ate growth over the medium term, significant business environment challenges,
and growing competition for investment from Mexico, we believe that the economy will figure prominently on the country's policy agenda
over the medium term. In addition, with the PAC growth acceleration programme scheduled to end in 2014, the government will be
challenged to continue improving Brazil's social development metrics in order to provide the foundations for robust long-term growth.


SWOT Analysis
BMI Economic Risk Index
Economic Activity
Slow Growth Here To Stay
Brazil will remain mired in a period of low growth in the coming years, due to a slowing consumer story, persistent business environment
challenges, and a weaker external environment. A more substantial contraction in real GDP in Q214 than we anticipated has prompted
us to revise down our 2014 and 2015 headline growth forecasts.
  Table: Economic Acti vit y
Fiscal Policy
Fiscal Consolidation Ahead, Neves Victory Would Spell More
Brazil is poised for a period of modest fiscal consolidation beginning in 2015. Moreover, should opposition candidate Aécio Neves win
Brazil's second-round presidential election on October 26, this would likely result in a sharper narrowing of Brazil's fiscal shortfall than
we currently forecast.
  Table: Fiscal Policy
Monetary Policy
Opposition Victory Would Pose Upside Risks To Interest Rate Forecasts
We expect Brazilian monetary policy to loosen in 2015 as the central bank increasingly focuses on stimulating growth. However, with
the second round of Brazil's October presidential election set to be tightly contested and a change in government highly likely to result in
a more hawkish central bank, we explore the upside risks to our multiyear interest rate outlook.
  Table: Monetar y Polic y
Balance Of Payments
Eroding Goods Trade Surplus To Weigh On Current Account
Brazil's balance of payments position will weaken in the next few years. An erosion of the trade surplus will keep the current account
shortfall wide, while a less supportive external environment and a lack of domestic reform will temper financial inflows.
  Table: Current Account
Exchange Rate Policy
BRL: Election Outcome Key To Pace Of Depreciation
Poor macroeconomic fundamentals and monetary easing will drive the Brazilian real to depreciate in the coming years. However, with
the second round of Brazil's presidential election too uncertain to call, we acknowledge upside risks to our forecasts stemming from an
opposition victory.
  Table: Currency Forecast
  Table: Exchange Rate


The Brazilian Economy To 2023
Q115: Days Of Easy Growth Are Gone
Although substantial mineral wealth and one of Latin America's largest consumer bases will help keep investor interest rooted in Brazil
over the long term, the next 10 years will not be easy for the economy. Indeed, the consumer story is set for a period of slower growth in
the medium term while infrastructure bottlenecks and a substantial tax burden are likely to continue weighing on the country's business
  Table: Long -Term Macroeconomic Forecasts


Operational Risk Index
Operational Risk
  Table: Operational Risk
Transport Network
  Table: Transport Network Risks
Economic Openness
  Table: Economic Openes
  Table: Top Five Products Exported
  Table: Top Five Trade Partners Product Imports


Oil & Gas
  Table: Headline Forecasts
  Table: Oil Production
  Table: Oil Production
  Table: Gas Production
  Table: Gas Production
  Table: Construction And Infrastructure Industry Data
  Table: Construction And Infrastructure Industry Data
Other Key Sectors
  Table: Pharma Sector Key Indicatorts
  Table: Telecoms Sector Key Indicators
  Table: Defence and Security Sector Key Indicators
  Table: Food and Drink Sector Key Indicators
  Table: Autos Sector Key Indicators


Global Outlook
Big Emerging Market Revisions
  Table: Global Assumptions
  Table: Developed States, Real GDP GrowtH, %
  Table: Emerging Markets , Real GDP Growth , %
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