Brazil Business Forecast Report Q3 2008

Publication Date	May 2008
Publisher	Business Monitor
Product Type	Report
Pages	62
ISBN Number	1744-8875
Product Code	BMI02069

Buy this product or for assistance call +44 20 7060 7474

PDF £250.00$416 | €280

FAX Order above formats by FAX

Summary

Investment Grade in 2008? The announcement by the Banco Central do Brasil (BCB) on February 21 that Brazil had finally become a net foreign creditor in January lends weight to our view that Latin America's previously largest debtor is set to attain investment grade status in 008 - a privilege up until now reserved for Chile, Mexico, Guatemala and now Peru in the Latin America region. For the first time in January, Brazil posted a negative net external debt figure (i.e. total international reserves exceeded total gross external debt) to the tune of some US$ bn, according to the central bank. This comes on the back of several years of moderating gross external debt growth in percentage of GDP terms, and a sharp rise in foreign currency inflows into Brazil. We currently expect Brazil's foreign reserves to continue rising over our forecast period (to US$ bn by 01 ), outstripping the country's foreign debt stock going forward. Using our in-house calculations, BMI projects that the nominal net external debt pile will continue to drop and average -2.8% of GDP over the five-year 2008-2012 period.

Brazil's budget ministry announced that President Luiz Incio Lula da Silva plans to freeze some BRL19.4bn (US$11.4bn) in spending this year, in an effort to help the government address a fiscal gap in the 2008 budget, after the country's senate refused to extend the lucrative CPMF financial transactions tax earlier this year. However, Brazil's budget minister Paulo Bernardo has commented that the prospective cuts will not affect planned spending commitments to healthcare and the government's economic aid package known as the Growth Acceleration Programme (PAC). Moreover, rising interest rates mean that the public sector's debt servicing costs could yet increase. Interest payments of BRL15.4bn in February have already seen Brazil's 12-month nominal fiscal deficit widen to 2.04% of GDP (up from 1.99% in the previous month).

While the move by Brazil's monetary policy committee (Copom) to begin its monetary tightening cycle on April 16 came as little surprise, the unanimous decision by the monetary policy council to hike its benchmark Selic rate by 0bps (as opposed to the bps we had been expecting) to 11.7 % suggests that the BCB is determined to reinforce its inflation-fighting credentials. Notwithstanding the slightly higher-than-expected uptick in consumer price inflation (CPI) in March to 4.73% y-o-y, Brazil's inflationary environment, in our view, remains benign for the time being. Latest data suggest that industrial capacity utilisation has declined in recent months, underpinning our outlook on inflation and our view that the BCB is seeking to anchor medium-term price expectations.

Energy giant Petrleo Brasileiro (Petrobras) has begun producing 1 ,000 barrels per day at the Badejo field from its floating production, storage and offloading unit (FPSO) Cidade de Rio das Ostras. It will be the first project to exploit the extra heavy oil fields located off the Brazilian coast. Although the level of production is small it adds further upside potential to Brazil's already healthy production forecast.

The FPSO will pump crude from the Siri reserve at the Badejo field in the Campos basin, the major petroleum production area in Brazil. It will serve as a pilot scheme for Petrobras to look at the viability of producing heavy crude from deepwater fields, in this case at a depth of 95 metres. It is planning to drill more wells at the site and install a larger platform on completion of the project's initial stage.

Content

Executive Summary
- Investment Grade in 2008?
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- Gearing up for The Presidency
- Political Scandals Continue to Grip The Government, Undermining Prospective Presidential Candidates Endorsed
- by President Luiz Incio Lula Da Silva
List of Tables
- Table: Candidates for 2010
- Table: Brazil Political Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Industry to Power on
- Brazil's Industrial Production Is Demonstrating Robust Growth, Particularly in The Capital Goods Sector
List of Tables
- Table: Economic Activity
- Balance of Payments
- Farewell to The Current Account Surplus
- Brazil's Current Account Will Slip into A Deficit of 0.4% of Gdp This Year as The Country's Trade Balance Deteriorates
- with More Currency Appreciation on The Cards, Our Revised Projections May Yet Prove Optimistic
List of Tables
- Table: Balance of Payments
- External Debt
- Investment Grade in 2008
- by Becoming A Net Foreign Creditor at The Beginning of 2008, Brazil Appears to Have Overcome A Major Hurdle
- in The Way of Achieving Investment Grade Status Later This Year
List of Tables
- Table: Foreign Debt
- Monetary Policy
- Bcb Means Business
- The Central Bank Reinforced Its Inflation-Tightening Credentials by Hiking The Selic Rate 50bps to 11.75% in April
- with Spiralling Prices Likely to Remain A Concern, Further Monetary Tightening Could Be Forthcoming
List of Tables
- Table: Monetary Policy
- Exchange Rate Policy
- Short-Term Outlook
- The Real Is Set to Remain on Its Appreciatory Path Going Forward. We Expect The Currency to End The Year at Brl1.6500/US$
List of Tables
- Table: Exchange Rate Policy
Chapter 3: Special Report
- Business Outlook for Global Frontier Markets
- Growing Fast on The New Frontier
- The 41 States That Bmi Examines in A New Report on Our Online Service May Make up Only A Small Slice of The
- World Economy, but They Possess Characteristics That Will See Them Gain Importance in The Eyes of Investors and
- Global Businesses over The Coming Years
List of Tables
- Table: Frontier Markets - Key Data and Projections for Top 10 Countries
- Frontier Investment
- Potential and Pitfalls
- The Spectacular Macroeconomic Performance of Frontier Markets in Recent Years Has Been Matched by Mildly
- Successful Efforts to Deepen Capital Markets
List of Tables
- Table: Gdp per Capita, US$ (in Order of % Increase)
- Table: Diversify through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices
- Regional Overview
- Laos
- Neighbouring Economies The Key to Growth
- Laos's Gdp Growth Has Been Boosted in Recent Years as Neighbours China, Thailand and Vietnam Compete for
- Its Natural Resources. Gdp Expansion in 2007 Has Been Estimated at 7.6% and We See Annual Growth Remaining
- above 7% for Our Five-Year Forecast Period
- Yemen
- Huge Potential, but Don't Bank on Gcc Membership
- Markets Do Not Come Much More Frontier than Yemen, and, as Would Be Expected, There Is Huge Potential for
- Development, with The Prospect of Eventual Gcc Membership Likely to Act A Key Investment Pull
List of Tables
- Table: Yemen - Economic Activity
- Democratic Republic of The Congo
- Mining Industry to Drive Growth
- The Democratic Republic of The Congo's Mining Industry Will Be A Key Driver of Growth and Is Likely to Attract
- Significant Levels of Fdi, with Our Real Gdp Forecasts Standing at 8.3% and 7.9% in 2008 and 2009, Respectively
List of Tables
- Table: Democratic Republic of The Congo - Economic Activity
- Cuba
- Investment Prospects after Fidel
- The Accession of A New Leadership Structure in Cuba Has Sparked Excitement That The 45-Year-Old Trade Embargo
- with The US May Be Lifted and Cuba May Move toward Market Liberalisation
List of Tables
- Table: Cuba Macroeconomic Data and Forecasts
- Mongolia
- Minerals to Drive Economic Boom
- Mongolia Is in The Midst of A Massive Resource-LED Economic Boom That Should Lift Gdp Growth into The Double
- Digits and Underpin Robust Increases in Exports and Inflows of Foreign Investment Capital over The Long Term
List of Tables
- Table: Mongolia - Economic Activity
Chapter 4: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
List of Tables
- Table: Bmi Business and Operational Risk Ratings
- Institutions
List of Tables
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Orientation
List of Tables
- Table: Latin America, Annual Fdi Inflows
- Table: Bmi Trade Ratings
- Table: Top Export Destinations
- Table: Top Import Sources
- Operational Risk
Chapter 5: Key Sectors
- Defence
List of Tables
- Table: Brazil Defence Expenditure Forecasts
- Food
List of Tables
- Table: Brazil's Beverage Sectors -- Value/Volume Sales, 2006-2012 (US$Mn Unless Otherwise Stated)