The Brazilian Economical Recovery
According to the International Monetary Fund (IMF), Brazil will again be the eighth largest economy in the world in 2017, with an estimated GDP of US $ 1.97 trillion (FSP, October 2016). In this article we share statistics to show why Brazil will offer interesting business opportunities again.
Brazilian exports have been contributing to the recovery of the economy. According to the Ministry of Industry, Foreign Trade and Services (MDIC), until October the exports totaled US $ 153 billion of various products, such as: crude oil; soy; iron ore; chicken meat; coffee; automobiles; aircraft; auto parts; machinery; motors and electric generators.
In 2016, agribusiness accounted for 39% of total external sales, only soybeans generated US $ 18 billion. This performance had a positive impact on the country’s trade balance. Until October, the balance registered a surplus of US $ 38.5 billion (AGRO-DBO, November 2016).
In accordance with FIESP / CIESP (October 2016), for 2016 the expected surplus is US $ 48.00 billion and for 2017, US $ 45 billion.
In the period from September 2015 to September 2016, there was a strong reduction of the deficit in current transactions. The expectation is that this reduction will continue. So far this year the deficit was $ 13.6 billion (1.3% of GDP). If compared to September 2015, there was a reduction of more than 70%, indicating that the country has already fulfilled the adjustment of its external accounts (IPEA, November 2016).
According to the Central Bank (BACEN), Direct Investment in the Country (IDP) amounted to US $ 73.2 billion (4.12% of GDP) in the last 12 months (October 2015 to September 2016). Foreign investments destined to the productive sector already add up to US $ 46.335 billion. In September, investments totaled US $ 5.233 billion (Estado, October 2016).
Finance Minister Henrique Meirelles, during the Brazil-China High Level Business Seminar in China end of 2016, appointed an improvement in the investment rate in the country (investment was the first sector of the economic activity to react, as there are clear signs that Brazilian economy is re-starting growth).
During the event, Mr Meirelles presented the infrastructure investment opportunities. Between 2016 and 2019, the total planned investment will be approximately US $ 269 billion in infrastructural projects, such as: oil and gas; electricity; telecommunications; transport; highways; sanitation; railways; airports; and ports (Agência Brasil, September 2016).
Although Brazil’s economic perspectives are improving, the recovery will be strenuous and any improvement in credit quality will take time to develop, according to Moody’s rating agency (Valor, September 2016).
The Economic Climate Indicator (ICE) calculated by the Getúlio Vargas Foundation (IBRE / FGV) in partnership with the German Institute Ifo improved and remained at 90 points (indicators above 100 are in the favorable zone and below 100 in the unfavorable zone). It is the fourth consecutive quarter of indicator growth (IBRE, November 2016).
According to the IMF, the estimated fall in GDP in 2016 will be 3.3%. However, for 2017, the forecast shows a slight growth of 0.5%. Although Brazil’s economy remains in recession, its economic activity is close to resuming growth (EBC, October 2016).
In the same way BACEN (Brazilian Central Bank) projects a reduction of 3.3% in GDP in 2016. However, for 2017 the forecast shows a growth of 1.3%. In relation to the inflation rate, projections are 7.3% in 2016 and 4.4% in 2017 (Xinhua Official Chinese Agency, September 2016).
The positive signs of the Brazilian economy reflect on the confidence of the businessmen. According to the National Industry Confederation (CNI), the confidence index grew nearly 50% in one year, from 35 points in October 2015 to 52.3 points in October 2016 (index above 50 points indicates the return of optimism of the Industrial entrepreneurship).
This confidence index influences industrial production, which increased 0.5% in September. In nine months, this was the sixth consecutive month of growth of industrial production, indicating improvements in the economy for 2017 (FECOMÉRCIO, November 2016).
The increase in the Brazilian industrial production and the growing investments in the productive sector indicate that the industry is expected to recover in 2017. The trade sector is optimistic with the recovery of the Brazilian industry. This will have positive effects on the trade and services sectors (FECOMÉRCIO, November 2016).
In October, the Trade Confidence Index (ICOM) increased 1.9% (81.9 points). The Construction Confidence Index (ICST) grew 0.1% (74.7 points). The Consumer Confidence Index (ICC) rose 2.2% (82.4 points), the sixth consecutive increase (IBRE / FGV, November 2016).
For the basic interest rate (SELIC) the projection is 13.50% at the end of 2016 and 10.75% at the end of 2017. The exchange rate is projected at US $ 3.20 at the end of 2016 and US $ 3.40 at the end of 2017 (FIESP / CIESP, October 2016).
Another positive aspect of the economy is the reduction of household indebtedness. However, the commitment of income to the payment of interest and amortization has remained stable. The level of indebtedness (43% of annual income) is low in international comparisons, but the commitment of income to debt service (22% of monthly income) is high (IPEA, November 2016).
A critical point of the economy is unemployment, according to the Brazilian Institute of Geography and Statistics (IBGE), in the 3rd quarter of this year the unemployment rate in the country reached 11.8% (12 million unemployed). FIESP believes that labor market conditions continue to be adverse and will be slow to recover.
Despite the economic crisis, several companies are optimistic about 2017. For the next year, Natura (a Brazilian cosmetics company) aims to strengthen its position in the domestic market through direct sales and by relaunching successful products and by expanding its presence in Latin America (Época Negócios On Line, October 2016).
The development of new products and the recovery of the economy in 2017 encourages the insurance industry. Despite the crisis, the sector grew 1% in 2016 and plans to expand more in 2017. According to Paulo Pereira, President of the National Federation of Reinsurance Companies (FENABER), the concession – and privatizations plans in the country’s infrastructural areas are important factors that will allow the resumption of the market. There are 34 very large insurance enterprises (FSP, October 2016).
Coopersucar (a big Brazilian biofuel and sugar producer) intends to restructure its business in 2017 to increase its competitiveness. 3M (Chemicals & Petrochemicals) aims to generate growth and value, and increase its market share in Brazil.
For VISA do Brasil (Financial Services), 2017 will be a year to consolidate many innovations that the company is bringing to the Brazilian market. The payments market is changing in Brazil and consumers will demand new innovative forms of payment.
MRV (popular housing construction company) has been investing and growing in recent years betting on the low-income consumer. In 2017 the company will maintain its investment program.
José Fernando Coura, President of the Brazilian Mining Institute, has an optimistic vision for the mining sector and projects a growth of 5% in 2017. Meanwhile, the Minister of Mines and Energy, Fernando Coelho, is of the opinion that the sector needs new investors to accelerate growth.
Great news comes from the agricultural sector, for the next harvest 2016/2017 Brazil will have more favorable weather conditions than the harvest of 2015/2016. For the production of soybeans, the country will have 90% of productive areas in good conditions for planting. The forecast accounts for a production of 100 million tons and exports above 53 million tons (ANEC, September 2016).
Finally, the positive signs of the economy point to a slow but safe recovery, indicating that the economic crisis is coming to an end. According to Minister Meirelles, the indicators show that the economy is recovering and he projects a GDP growth of 1.6% for 2017 and 2.5% for 2018.
Brazil reaffirms itself as a country with enormous potential for growth. Despite the recent turmoils Brazil continues to solidify its democracy and has started a process to professionalize it´s institutions.