When the global economic crisis hit in the 2008-09, having no more than a moderate impact on the Brazilian economy, erstwhile President Luiz Inácio Lula da Silva of Worker’s Party having won the Presidential election in his 3rd attempt felt inclined to alienate himself from free trade and an open market associated with globalization. In 2010, in the face of increased state spending, the GDP reached the next highest of about 9.3% in the first quarter of 2010. In 2011, under the determined leadership of Dilma Rousseff assumed office, the Brazilian government’s will to protect against cons of globalization morphed into a preference for the Capitalism model of growth. This developmentalism form of government increased inflation while prices of key utilities affecting the inflation index, like food, oil, and electricity were capped. Moreover, tax breaks for preferred sectors were granted, while the Petrobras scandal involving politicians and well over US$2 billion in siphoned money raged on.
The deceleration in China’s economy combined with speculations of a hike in USA’s interest rates has inspired austerity, which has exacerbated the conditions in Brazil. The rate of joblessness is increasing while the country has little social security for those who have been laid off in response to closing manufacturing units. The Real lost against the dollar, making imports costlier. Over the past year, nearly 0.5% of the GDP, or about US$27.3 billion had been racked up in deficits. Brazil’s GDP, once growing YoY at 10.10% in 1995, is now contracting at 0.20% YoY from existing US$2.3 trillion. Inflation is worryingly high at 8.13%. The question that pulsed in everybody’s minds: What can be done about this?
The answer came in the form of economic reforms spear headed by Joaquim Levy, Chicago-educated Brazilian Finance Minister, who painstakingly convinced senators that austerity is the only way to remedy the deep running issues and to avoid losing the investment grade. Interest rate has been hiked to a record 13.25%, highest in 6 years to reflect investment friendly sentiments. Tax breaks for preferred industries, as well as subsidies on fuel have been removed.
Attempts are being made to achieve normalcy again. Aiming at the primary fiscal surplus target of 1.2% of the GDP within the year, Mr Levy remains positive about taking it to 2% gradually. Real gained against the dollar in response to tightening of fiscal measures. Petrobras regained its lost grace and led the surge in the stock market, while also signing a deal of US$3.5 billion with China. Investors should expect better corporate governance in return from this: not a bad gain for long term investors in one of the largest economies of the world.
Brazil is the 6th most populated country in the world. Its consumer market is set to overtake that of France and UK by 2020, becoming the 5th largest in the world. Its middle class is 100 million strong and rising, with a GDP per capita increasing from the current US$11,208. The dismal income inequality gap has been steadily closing. In view of the recent fiscal tightening measures, a short term slump can only be followed by prosperity in the long term.
Infrastructure will drive Brazil’s growth, on the back of US$850 billion in state allocated as well PPP generated funds to be used on transport (road, rail and ports overhaul) and energy infrastructure, construction driven by the upcoming Olympics. An expanding middle class, especially in Brazil’s interior cities, with the country’s disposable incomes rising at 14% between 2001 and 2011, will fuel a rising retail sector, especially in the Franchising area despite a currently contracting retail market. Pharmaceuticals growth has decelerated from double digits, but may well continue at a solid 7 to 9% annually. Tourism will experience growth from the regional and international markets, and the famous regulatory frameworks in place in the Brazilian finance market will bound back.
A slowing economy reflected in tighter purse strings, depreciating real, high level of corruption and bureaucracy the government seems entrenched in make for macroeconomic constraints. Moreover, Government protectionism and intervention in key infrastructure projects discourages investors, while some which are already approved are being halted on grounds of corruption and lack of funds.
What the report offers
The study identifies the situation of Brazil and predicts the growth of its Key Sectors. Report talks about growth, market trends, progress, challenges, opportunities, government regulations, technologies in use, growth forecast, major companies, upcoming companies and projects etc. in the Key Sectors sector of Brazil. In addition to it, the report also talks about economic conditions of and future forecast of its current economic scenario and effect of its current policy changes in to its economy, reasons and implications on the growth of this sector. Lastly, the report is segmented by various forms of Key Sectors available in the country.
Looking to Customize Report?