Brazil Business Forecast Report Q2 2009

Publication Date	February 2009
Publisher	Business Monitor
Product Type	Report
Pages	68
ISBN Number	not applicable
Product Code	BMI03439

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Summary

Brazil's Fundamentals Put To The Test In 2009 The fundamentals underpinning Brazil's economic successes of the past five years, and its growing role as a regional leader in Latin America will be tested in 2009. Up until now, the Brazilian authorities have moved quickly to address existing imbalances in an effort to contain the effects of the global recession on Brazil. In the Q209 Brazil Business Forecast Report, we examine areas of the economy which will come under particular strain in 2009, and which will require political reforms in order to alleviate the risk of a prolonged economic downturn. At the outset of 2009, we believe that policy-makers are gearing up for a succession of rapid and aggressive measures to ease tighter credit conditions and restore domestic demand. The successful implementation of such measures, such as our projections for 250bps of interest rate cuts to 11.25% this year, will determine how severe the current economic slowdown will be.

An opinion poll conducted by Instituto Sensus in December showed that opposition candidate Jos Serra from the Partido da Social Democracia Brasileira (PSDB) remains the frontrunner for the 2010 presidential election with 46.5% of votes. While President Luiz Incio Lula da Silva continues to see approval ratings hit record highs (80.3% in December), his popularity has not been passed onto his chief of staff Dilma Rousseff, who is the official candidate for the ruling Partido dos Trabalhadores (PT), garnering only 10.4%. Ahead of Rousseff is Helosa Helena with 12.5%, from the Partido Socialismo e Liberdade (PSOL), a Trotskyist offshoot from the PT, founded in 2004 by a group of PT dissidents, led by Helena.

As the Brazilian economy moves into the new year, it seems to us that the much-praised resilience of the consumer sector has been left behind in 2008. Although signs of a decelerating economy had already started to surface during the last two months of the year, our outlook for 2009 has turned markedly more bearish in January, as a series of negative economic indicators started to appear.

Industrial output numbers are showing worrying signs of a prolonged contraction, and sales figures, too, are pointing to retrenching domestic demand. This comes against the backdrop of the global economic recession and the ongoing financial crisis, leading to yet another bout of weakness for global stocks. Such a backdrop will hardly soothe the ongoing decline in confidence levels (both consumer and economic), suggesting to us that borrowing appetite in Brazil this year will be kept to a minimum.

In our proprietary business environment ratings, Brazil scores 4.7 (out of 100) in the 'hiring cost' subcategory of the labour force rating, the lowest score in all of Latin America. To be sure, Brazil ranks 152nd in this category, out of a total 158 countries in our business environment ratings.

At 41.6, Brazil's labour market 'rigidity' score is well below the regional average of 52.6, with the country's overall labour force rating standing at 49.6 (below Latin America's average score of 53.8).

It is hardly surprising, therefore, that estimates of Brazil's informal labour market are as high as 50% of the economically active population.

Content

Executive Summary
- Brazils Fundamentals Put To The Test In 2009
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Regional Politics
- Regional Summit: The End Of The Monroe Doctrine?
- Although the absence of US President George W. Bush from the Latin American and Caribbean Summit on
- Integration and Development is a significant shift in the regions foreign policy, we refrain from overstating
- any symbolism to the development
- Tab le: Political Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- The End Of The Five-Year Boom
- It is becoming clearer to us that impact of the global recession and financial crisis will have a more severe impact
- on the Brazilian economy in 2009 than previously anticipated
- TABLE: ECONOMIC ACTIVITY
- Labour Market
- Inflexible Labour Laws Boost Unemployment
- As the sharp economic slowdown takes hold in Brazil, the countrys rigid and inflexible labour market is set to
- exaggerate the effect of slower economic growth on unemployment rates
- Balance of Payments
- Deeper C/A Deficit Widening In 2009
- We are forecasting a 3.4% of GDP current account deficit in Brazil this year, and expect the country to continue
- posting shortfalls through to 2016
- TABLE: BALANCE OF PAYMENTS
- Fiscal Policy
- Tighter Room For Public Spending
- Government revenue streams are set to come under pressure as the economy is bound to suffer a very hard
- landing in 2009
- TABLE: FISCAL POLICY
- Monetary Policy
- Conditions Ripe For Aggressive Easing
- As inflation slows, we see increasing room for Brazils central bank to begin its front-loaded monetary easing cycle,
- starting with a likely 100bps interest rate cut in January to 12.75%
- TABLE: MONETARY POLICY
- Currency Outlook
- Stifled By Deteriorating Growth Outlook
- We see a growing number of factors, which will likely keep the Brazilian real subdued for most of 2009
- TABLE: EXCHANGE RATE POLICY
Chapter 3: 10-Year Forecast
- The Brazilian Economy To 2018
- From BRIC To Economic Powerhouse By 2018
- Vast natural resources, the emergence of an enormous consumer segment, and a prudent policy mix will keep
- investor interest in Brazil elevated over the coming 10 years
- TABLE: LONG -TERM MACROECONOMIC FORECASTS
Chapter 3: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest and least discussed wild cards that could rear its head in 2009 is dramatic political
- upheaval in China
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will combine
- to spell trouble for the financial services sector in 2009
- Table: Banks Leverage Ratios
- Table: Assets As % of Home Country GDP
- Table: Assets As % of Home Country GDP When Euro zone Is Considered Home Country
- Table: Exposure As % of Total Exposure To Region
- Table: Ban ks Foreign Exposure (US$ mn )
- TABLE: Exposure As % of National GDP
Chapter 4: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Table: BMI Business And Operational Risk Ratings
- Institutions
- Table: BMI Legal Framework Ratings
- Infrastructure
- Table: Latin America Annual FDI Inflows
- Market Orientation
- Table: BMI Trade Ratings
- Table: TOP EXPORT DESTINATIONS
- Operational Risk
Chapter 5: Key Sectors
- Food and Drink
Executive Summary
- Per-capita food & drink consumption in Brazil is among the lowest in the Latin American region
- Tab le: Brazil Food Consumption Indicators Historical Data & Forecasts
- Freight Transport
Executive Summary
- Brazil performs reasonably well in our freight transport industry rating, scoring 66.5 out of 100, significantly
- above the regional average
- Tab le: Transport Industry Economic Scenario , 2005-2012
Chapter 6: BMI Global Assumptions
- Global
- TABLE: GLOBAL ASSUMPTIONS
- Table: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
- Economic Activity
- TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
- TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- Monetary Policy
- TABLE: EMERGING MARKET EXCHANGE RATES