Brazil Business Forecast Report Q4 2009

Publication Date	July 2009
Publisher	Business Monitor
Product Type	Report
Pages	60
ISBN Number	not applicable
Product Code	BMI04088

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Summary

On Course For Recovery

Although the majority of economies in the region have likely seen the rate of economic contraction peak during the first quarter of 2009, this by no means guarantees an immediate recovery and return to economic stability in the near term. However, in the case of Brazil, we are growing increasingly confident in our view that the economy may already be on the road to recovery, underpinning our expectations for a V-shaped recession cycle this year. In the Q409 Brazil Business Forecast Report we look at the extent to which the strong macroeconomic fundamentals generated in Brazil over the past decade, following painful reforms in the 1990s, will keep the economy in good stead. Perhaps most remarkably, we have revised up our trade surplus projection for this year, now expecting a surplus akin to the one posted in 2008, almost twice the size initially expected. Although this is in no small part the result of a sharp contraction in imports this year, we highlight the extent to which the country's vast array of commodities has kept the export sector afloat in the current external economic climate.

Brazil is facing a deepening institutional crisis implicating the senate leader and former president, Jos?(C) Sarney (1985-90), from the centrist Partido do Movimento Democr??tico Brasileiro (PMDB)

- Brazil's largest party and key PT coalition partner. Sarney has faced growing calls to resign for the duration of an ongoing investigation into abuses of administrative expenses and the widespread use of 'secret directives' for nepotism and political favouritism. The latest parliamentary corruption scandal has exposed the use of 'secret directives' by senate and congress leaders (with both houses headed by the PMDB), currently numbering 600 cases, in which little or no information is disclosed about the transfer of administrative expenses to members of family or individuals key for political gains.

While acknowledging the impact of the current recession, we remain long-term bullish the Brazilian economy. We believe that Brazil's economy has a lot going for it, ranging from an enviable array of commodity resources, such as soy, sugar, iron ore, steel, and hydrocarbons (our oil and gas desk expects Brazil to become a net exporter of oil by 2011), to a highly promising consumer segment. We expect the Brazilian consumer to grow in prominence over the coming decade, as bank lending will continue to be a driving force behind Brazil's economic performance, offering more sophisticated financial instruments to different sectors of an economy in which housing and agricultural loans are still a very nascent phenomenon.

In the world's largest initial public share offering (IPO) this year, VisaNet, the Brazilian affiliate of credit-card giant Visa Inc raised some BRL8.4bn (US$4.3bn), generating a pre-tax gain of US$235mn for the San Francisco-based parent credit-card network operator. The success of the IPO at a time of volatile financial markets and a possible return of risk aversion following a threemonth rally in global stock markets, lays testament to the strong long-term outlook for the Brazilian consumer, in our view. Indeed, though largely developed by regional standards, we believe that financial services and consumer credit will continue to demonstrate immense potential over the long term.

Content

Executive Summary
On Course For Recovery
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Prospects For Another PT Presidency Look Even Dimmer
- Although President Lula continues to enjoy record public support, we continue to see very few prospects for
- another Partido dos Trabalhadores victory in next year's presidential election
- Table: Political Overview
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Can't Keep A Good Economy Down
- First quarter real GDP data supports our view of a prompt economic recovery in Brazil
- Table: ECONOMIC ACTIVITY
- Balance Of Payments
- Exports To China Improve C/A Outlook
- We have revised down Brazil's current account deficit forecast for 2009 to 1.4% of GDP, from 2.4% previously, as
- we now see a stronger performance in the country's trade balance this year
- Table: CURRENT ACCOUNT
- Fiscal Policy
- A Bump In The Road
- A widening nominal public sector deficit and growing debt load in 2009 should represent little more than a bump
- in the road, although we caution that the Brazilian authorities must maintain fiscal credibility in order to keep
- foreign creditors and the ratings agencies on side
- Table: FISCAL POLICY
- Monetary Policy
- Single Digit Selic Rate Here To Stay
- Having fallen to historically low levels (currently at 9.25%), we believe that the Banco Central do Brasil will keep
- the benchmark Selic interest rate within single digits in the coming years
- Table: MONETARY POLICY
- Commodity Forecast
- Banking Sector Outlook
- Bumpy Road Ahead
- Government pressure to reduce borrowing costs seems to have succeeded in sending average lending rates
- significantly lower
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 4: Special Report
- The Fate Of ???Chindia'
- Overview
- Although China and India will continue to grow during the global recession of 2009-2010, they are not immune to
- the downturn, and face a number of risks in the near term
- China And India SWOT
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Table: BMI Business And Operational Risk Ratings
- Institutions
- Table: BMI Legal Framewo rk Ratings
- Infrastructure
- Table: Latin America Annual FDI Inflows
- Market Orientation
- Table: BMI Trade Ratings
- Table: TOP EXPORT DESTINATIONS
- Operational Risk
Chapter 6: Key Sectors
- Tourism
- Table: Brazilian Tourism Indust ry, 2006-2013
- Oil & Gas
- Table: Brazil's Oil & Gas Sector ??