Country Report Brazil March 2010

Outlook for 2010-11

• With the economy rebounding and a highly popular outgoing president, Luiz Inacio Lula da Silva, campaigning vigorously in her favour, we expect Dilma Rousseff, to secure a third, consecutive PT term at the October 2010 election.
• Ms Rousseff would retain the current macroeconomic policy framework and provide a stronger role for the state in the economy.
• If Jose Serra, the likely PSDB candidate, were to win, he would also retain the macroeconomic framework but would seek to dampen public spending to ease interest rates. He espouses a less state-led development model.
• Real GDP is forecast to grow by 5% in 2010, with expansion broadly based. In 2011 weaker US and Chinese growth as stimulus measures wane, and domestic policy tightening, will dampen Brazil's GDP growth to 4.5%.
• Pre-electoral spending will prevent much of an improvement in the primary fiscal surplus in 2010 with the economic recovery, but assuming the incoming government makes adjustments, the surplus will rise towards 3% of GDP.
• Assuming that the Real remains relatively stable, annual inflation will not rise too far above the 4.5% central target in 2010, easing in 2011 as policy tightening dampens domestic demand growth.
• After narrowing to 1.6% of GDP in 2009, the current-account deficit will widen to 3.4% of GDP in 2011, as the trade surplus goes into deficit as domestic demand picks up, drawing in imports.

Monthly review

• Ms Rousseff, who has now been nominated by the PT as its candidate, has narrowed the gap on Mr Serra in the polls, as her public recognition has risen.
• The PT unveiled a leftist government programme, underscoring the challenges Ms Rousseff will face in wielding authority over the party to ensure that her and Lula's pragmatic centrist policy bent prevails.
• The PSDB is struggling to persuade the PSDB governor of Minas Gerais, Aecio Neves, to stand as Mr Serra's running-mate, which would boost their appeal.
• The Central Bank has begun to remove last year's countercyclical stimulus measures by draining R71bn (US$39bn) of the R100bn liquidity injected into the banking system to ease the credit crunch last year.
• Strong central government tax revenue in January reflected exceptional factors. The result lifted the 12-month consolidated public primary surplus from a low of 1% of GDP in October 2009 to 2.3% of GDP in January.
• Leading indicators show that Brazil's rebound has momentum, with a strong January employment report and supermarket sales.

This report covers the following industry codes:
SIC Code: 37;1
NAICS Code: 336;11

• Highlights
• Outlook for 2010-11: Domestic politics
• Outlook for 2010-11: International relations
• Outlook for 2010-11: Policy trends
• Outlook for 2010-11: Fiscal policy
• Outlook for 2010-11: Monetary policy
• Outlook for 2010-11: International assumptions
• Outlook for 2010-11: Economic growth
• Outlook for 2010-11: Inflation
• Outlook for 2010-11: Exchange rates
• Outlook for 2010-11: External sector
• Outlook for 2010-11: Forecast summary
• The political scene: Early campaigning is paying off for Ms Rousseff
• The political scene: PT's policy platform is leftist; Ms Rousseff is more pragmatic
• The political scene: The PSDB faces setbacks as Mr Serra delays campaigning
• The political scene: Contradictions in Lula's leftist foreign policy come to the fore
• Economic policy: A rise in reserve requirements heralds policy tightening
• Economic policy: Strong January results lift annual primary surplus
• Economic performance: Leading indicators in January confirm rebound
• Economic performance: Policy response to higher sugar prices hits ethanol industry
• Economic performance: Current-account deficit is on a widening path
• Data and charts: Annual data and forecast
• Data and charts: Quarterly data
• Data and charts: Monthly data
• Data and charts: Annual trends charts
• Data and charts: Monthly trends charts
• Data and charts: Comparative economic indicators
• Basic data
• Political structure