Brazil is a very attractive emerging market for many of our clients. It is the second largest economy in the Western hemisphere – the largest in Latin America. The country has one of the fastest-growing economies in the world, and is home to many promising businesses. Our coverage – using our unique Total Analysis model – ensures that our clients make well-informed investment decisions in Brazil. Our teams keep them abreast of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. We also provide in-depth analysis on 24 of Brazil's most important industries. Our winning combination of interactive data and forecasting, alongside our risk-assessed and results-proven analysis, will make sure that you, as one of our clients, are always ahead of the game in Brazil.

Country Risk

Brazil Country Risk

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Core Views

  • Brazil's economic recovery will falter in 2014, with real GDP growth coming in at just 0.7% in 2014. Fixed investment will remain weak in light of falling business confidence, while poor consumer confidence to constrain private consumption growth.

  • We forecast a modest pick-up to 1.5% real GDP growth in 2015, but expect relatively slow private consumption growth and moderate investment will weigh on headline growth in the coming years. 

  • Elevated inflation will keep interest rates steady at 11.00% through end-2014, but the bank will switch its focus from reining in inflation to stimulating growth in 2015. As such, we forecast 100 basis points of rate cuts to 10.00% by end-2015.

  • The widespread public protests that took place in June 2013 marked a turning point for the Brazilian electorate. ...

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Brazil Operational Risk Coverage (9)

Brazil Operational Risk

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BMI View: Overall, the worst issues facing businesses considering entering Brazil stem from the extremely poor quality of the transport networks, and the numerous fiscal and trade barriers to investment in conjunction with the lack of openness to investment overall. These issues are further compounded by the extremely high crime rate, which poses risks to the safety of foreign workers and business property . However, that is not to say there are not a number of advantages to investing in this leading BRICS nation , not least its abundant natural resources and large consumer market .

Alongside a well-developed financial market with good international ties, we also highlight the strong trade flows and future market growth potential, the minimal threat of interstate conflict disrupting the markets and the...

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Brazil Crime & Security

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BMI View: The most significant security risk facing Brazil is its high crime rate, particularly for violent crime. Indeed, while the rates of theft, assault and homicide per 100,000 people have remained steady or broadly declined in the last few years, coming in at 630.8, 364.7 and 21.8, respectively as of 2011, they still remain amongst the highest in Latin America. Crime affects all parts of the country, including affluent areas, although the urban centres of Rio de Janeiro and Sao Paulo are a major focus of security forces' efforts. In contrast, the risk from terrorism and interstate conflict disrupting business activity in Brazil is much lower, meaning that the country scores well overall in the BMI Crime and Security Risk Index. Brazil's score of 56.9 out of 100 places it relatively highly in eighth out of 28 countries in the Latin America region.

In addition to...

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Brazil Labour Market

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BMI View: The Brazilian labour force possesses many strengths, including a relatively large p ool of workers with rising numbers of technical and science graduates. However, hiring Brazilian workers entail significant monetary costs, with highly-skilled staff in particularly high demand. Other drawbacks include relatively inflexible labour laws with strict legal protection for workers, and powerful and often active unions. Overall, Brazil has a Labour Market risk score of 54.9, placing it slightly ahead of Peru and slightly behind Uruguay, in sixth place among 28 countries in the Latin America region.

The size of the Brazilian workforce is arguably the labour force's greatest strength, with Latin America's highest rate of employment among working age people. The demographics of the labour force are reasonably positive for...

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Brazil Logistics

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BMI View: Brazil's considerable market size offers plenty of opportunities for investment, but its economic growth remains constrained by the lack of development in its transport and utilities infrastructure , increasing operational risks and adding costs to supply chains . The utilities sector offers competitive costs, but soaring demand means it is overstretched, and droughts have led to frequent water and power shortages, compromi sing business activities in Brazil's main economic sectors, agriculture and mining. In addition, trade flows are reliant on a poor quality and congested road network, which is not able to meet supply chain needs, increasing the risk of delays. Although investment across utilities and transport...

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Brazil Trade & Investment

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BMI View : Brazil presents tremendous opportunities to foreign investors, with abundant natural resources and a growing middle class consumer base. However, the business environment is hampered by significant bureaucracy, government intervention, and endemic corruption. The country is therefore placed in the middle of the pack regionally in the overall BMI Trade and Investment Market Risks Index, in 15 th place out of 28 Latin American states, with a score of 46.9 out of 100.

Following decades of being largely closed off to foreign trade and investment, Brazil began to liberalise in the 1990s by lifting import barriers, privatising key state companies, and clamping down on corruption. Foreign investment in Brazil has picked up significantly in the past...

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Brazil Industry Coverage (24)

Agribusiness

Brazil Agribusiness

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BMI View: Overall, we believe there is the most potential for growth in Brazil's soybean, livestock/dairy and coffee segments over the medium term. This is because of a shift in food consumption growth towards Asia for these items, while demand growth from traditional buyers will be subdued. We are more cautious about the sugar cane sector as a whole, as mills are suffering from low profitability linked to low global sugar prices and heavy debt burdens. Only the ethanol industry will encourage cane production growth, but it is still unclear if the government will continue to see biofuels as a priority in its energy mix in the medium term. In the short term, recurring weather concerns linked to climate will pose downside risks to all our forecasts over the coming years and to global prices as the country is such a significant exporter.

Agribusiness Market Value
BMI Market...

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Autos

Brazil Autos

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BMI forecasts a 0.5% drop in vehicle sales in 2015, as we expect the passenger car segment to drag down total sales despite a very slowly recovering commercial vehicle (CV) segment.

We forecast a 1.9% decline in passenger car sales in 2015 with sales reaching 2.44mn units for the year. This decline will come as growth in new passenger car purchases falls behind growth in consumer spending due to car sales tax hikes weighing on demand.

In 2015, BMI expects to see 3.1% growth in light commercial vehicle (LCV) sales, a slowdown from strong growth in recent years and a 2.0% expansion in heavy truck sales. This slightly improving outlook for CVs is due to improving growth in fixed investment over the year.

BMI is becoming less bearish on the country's domestic sales and export outlook and believes this will feed into a...

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Commercial Banking

Brazil Commercial Banking

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...
Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Brazil Consumer Electronics

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BMI   View:   W e downgraded the outlook for consumer electronics spending in Brazil in 2014   in the Q4 update due to a more challenging macroeconomic environment , particularly the weakening consumer and debt-burdened households . However , the hosting of the FIFA World Cup should provide additional demand for TV sets and smartphones , helping to offset the squeeze . A reas in which we expect strong growth include 4G smartphones as operators expand the...

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Defence & Security

Brazil Defence & Security

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BMI View: The Brazilian defence sector is set to continue to be one of the most active and open for foreign players, both with regards to imported goods from more established countries, and its relatively unfettered export market. In addition, the government's emphasis on creating a self-sufficient defence sector over the longer term is resulting in an ever-increasing number of partnerships and joint ventures on various development programmes between Brazilian companies and their foreign peers.

At present, the domestic defence sector is comparatively well developed, particularly with regards to small firearms, ammunition and aerospace products, and relatively diverse. However, the armed forces and police force lack advanced maritime, surveillance and rockets/missile capabilities and are keen to expand these areas. This is not only resulting in a ramping up of imports relating to these segments...

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Food & Drink

Brazil Food & Drink

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We expect real private consumption growth in Brazil to remain moderate in the coming quarters, in line with our full-year forecast of 2.3%, up from 1.7% in 2013. This is underpinned by or view that currency depreciation will continue to erode households' purchasing power and high interest rates will temper demand for credit ( see 'Weaker Consumer To See Economic Recovery Falter', February 21). We also expect weak consumer confidence to cap private consumption this year, with households less likely to spend in light of deteriorating economic prospects.

Food and retail consumption is likely to outperform among the country's private consumption items, and we project generally strong sales growth for the main companies in the sector. We also believe that a moderation in input prices (grains) could help margins for these companies to recover in the coming months.

Headline Industry...

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Freight Transport

Brazil Freight Transport

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We anticipate that growth in Brazil's freight transport volumes will outperform the Latin American giant's real GDP growth over our medium-term forecast period (2015-2019), across all modes. Brazil will remain mired in a period of low growth in the coming years, due to a slowing consumer story, persistent business environment challenges, and a weaker external environment. A more substantial contraction in real GDP in Q214 than we anticipated has prompted us to revise down 2015 headline growth forecast. Nevertheless, steady growth in mining and agriculture output will ensure that freight volumes keep growing.

Continued growth in the BRIC (Brazil, Russia, India and China) nation's mining and agribusiness sectors will ensure that the road, rail and ports sectors will continue to experience healthy expansion, while air freight will benefit from the growing demands of the country's expanding middle class. Further, the sector will benefit from...

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Information Technology

Brazil Information Technology

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BMI View:   T he medium term growth story for Brazil's IT market is positive, but we continue to highlight downside in 2014 as a result of a weaker economic environment, particularly currency depreciation and declining confidence . Looking further ahead, t he Brazilian IT market is the largest in Latin America and will continue to be driven by a growing middle-class population and enterprise modernisation . There are also major opportunities in the retail hardware spending, with first-time buyer and upgrade/replacement...

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Infrastructure

Brazil Infrastructure

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BMI View:   Fundamental issues in Brazil's business environment will continue to undermine growth potential in the country's construction sector. Despite the success of transport concessions and power auctions, which will help to revive the construction sector from recession in 2015, this recovery is unsustainable over the longer term. We anticipate a longer term slowdown as fundamental weaknesses emerge and financing sources are exhausted.

Despite a four year BRL959bn PAC II investment programme, which according to June 2014 data was 86% executed as of April 2014 when the programme ended, the construction sector has continued to see only weak growth. We are now estimating a recession for 2014 as a whole, with -3.0% anticipated, following an exceptionally week first half of the year. With elections to take place in October, we do not anticipate any substantial recovery until 2015.

...

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Insurance

Brazil Insurance

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BMI View: Looking ahead to 2015 and beyond, Brazil ' s insurance sector should post steady growth in total written premiums, in part driven by greater macroeconomic stability. In the short-term, forecasts in terms of US dollars will be somewhat constrained by continuing currency fluctuations.

We anticipate steady growth for many of Brazil's insurers, who have shown remarkable resilience in the face of continuing political and macroeconomic instability. Both segments are benefiting from recent economic expansion, which in turn has increased the demand for premiums. Despite a positive long-term outlook, the regulator and insurers alike will have to look at more innovative solutions to the issue of low penetration levels. Without such measures the sector will struggle to achieve optimal growth levels. Sales have been particularly high in VGBL, PGBL...

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Medical Devices

Brazil Medical Devices

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BMI Industry View:   Brazil has the largest economy and medical device market in Latin America, but per capita medical expenditure is still very low. The highest expenditure is in the large cities, such as São Paulo or Rio de Janeiro, but producers are moving into regional markets outside the major state capitals. The relatively low density of the medical device market means Brazil continues to offer considerable potential for expansion. Despite sluggish economic growth and a depreciating real which is making imported products more expensive, Brazil is forecast to be the fastest g rowing market within BMI 's Americas region. The country has a well- established medical industry,...

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Metals

Brazil Metals

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BMI View: R efined metal production and consumption in Brazil will see accelerating growth in the years ahead on the back of expansion in Brazil's automotive, construction, and infrastructure sectors. However, the coming quarters will remain challenging owing to weak economic growth marked by subdued private consumption and fixed-asset investment.

Stronger Sector Performance In Latter Half Of Decade

We expect metals consumption and production to face headwinds in the coming quarters on account of modest economic growth ( see '  Slow Growth Here To Stay ,' September 9). We forecast real GDP growth of just 0.7% in 2014 and 1.5% in 2015 on the back of sluggish private consumption, subdued fixed asset investment, and a weak business environment...

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Mining

Brazil Mining

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BMI View:   Brazil's mining industry value   will see slower   average growth to 2018 compared with previous years on account of subdued mineral prices . Nevertheless, mine production will still see growth as both domestic and foreign miners continue to exploit the country's significant reserves of both industrial and precious metals.

We expect solid mine output growth in Brazil, particularly for iron ore, despite weak prices. While we forecast iron ore prices will average lower year-on-year over the coming years, from USD100/tonne in 2015 to USD85/tonne in 2018, Brazilian firm Vale will...

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Oil & Gas

Brazil Oil & Gas

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BMI View:   Brazil's vast pre-salt reserv es suggest sub stantial growth potent ial over the long-term, underpinning our bullish upstream view that crude, natural gas, and other liquids output will rise throughout our forecast period. In the near-term, we hold a more bearish view , as mandated fuel   subsidies will propel continued consumption growth, increasing imported fuel cost s o n state-owned Petrobras' strapped finances ....

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Petrochemicals

Brazil Petrochemicals

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The Brazilian chemicals industry continues to lose competitiveness due to its dependence on high cost feedstocks and the effects of water shortages and electricity black-outs, according to BMI's latest Brazil Petrochemicals Report.

In H114, the Brazilian petrochemicals industry saw a negative performance in all polymer segments. Domestic production of thermoplastic resins dropped by 5.2% y-o-y and the capacity utilisation rate was down three percentage points compared to H113 to 78%. In the 12 months to end-June 2014, production fell 2% on the back of a 5.5% fall in exports and 7.5% growth in imports.

Polymers consumption fell 3.1% y-o-y in H114. In view of the market contraction in H114 and faltering economic recovery, with our GDP growth forecast revised from 2.0% to 1.8%, we now envisage a contraction in the petrochemicals market in 2014, a revision from the zero growth forecast in the...

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Pharmaceuticals & Healthcare

Brazil Pharmaceuticals & Healthcare

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BMI View:   Brazil's traditional commitment to healthcare, strong government support for the provision of medical services, promising private healthcare growth and the expanding middle-class mean that there are significant revenue-generating opportunities for drugmakers, medical device companies and healthcare service providers. However, multinationals will continue to face increasing government intervention and domestic competition .

Headline Expenditure Projections

  • Pharmaceuticals: BRL57.0bn (USD26.4bn) in 2013 to BRL62.0bn (USD26.6bn) in 2014; +8.8% in local currency terms and +0.8% in US dollar terms. Forecast revised upwards from Q 3 14 due to changes to macroeconomic...

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Power

Brazil Power

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BMI View:   Brazil 's power sector continues to offer significant investment opportunities due to its unmatched size, government's commitment to power capacity expansion and large prospective in renewables and natural gas-fired thermal sectors. However, the country 's potential is hindered by its   continued depend ence on unreliable hydroelectricity , weak infrastructure and regulatory interjections. In...

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Real Estate

Brazil Real Estate

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BMI View:   Brazil ' s economy has struggled throughout 2014 , even falling into recession during Q214. This has negatively affected investor and consumer confidence and weakens the country ' s economic position in Latin America. While our growth forecast for 2015 stands at only 1.5% we do foresee the long-term potential of Brazil ' s real estate market to be strong. Supported by a growing population and an increasing ly advanced domestic economy, a number of real estate opportunities will emerge, particularly in retail and industrial segments.

The overall health of Brazil's economy has...

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Renewables

Brazil Renewables

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BMI View :   We are maintaining our 2015 forecasts for non-hydropower renewable energy generation in Brazil this quarter, but have revised up our long-term forecasts to account for the strong results of the reserve auction in 2014 . Wind energy will continue to be th e main driver of growth in 2015. B iomass capacity will also grow sizeably.

Key Trends And Developments

  • The Brazilian energy agency Empresa de Pesquisa Energética (EPE) announced that it had designed a special contract for solar photovoltaic (PV) projects for the reserve energy tender (A-5) to be held later in 2014.

  • EPE awarded 889.6MW of PPAs for solar capacity at the 2014...

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Retail

Brazil Retail

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BMI View: Brazil's retail sector will continue its strong growth trajectory over the medium to long term, boosted by an increasingly affluent population, rising urbanisation and a decrease in unemployment. The number of households entering the USD10,000-p lus income bracket will reach 56.2 % by 2018, driving growth in non-essential items/experiences, such as clothing, personal care and dining out. Lower income households are also being targeted by retails discounters , particularly in the mass grocery retail sector, and we expect this trend to continue.

The 2016 Olympics are set to promote investment into sectors that traditionally benefit from major sporting events, although the Brazilian government's decision to raise taxes on...

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Shipping

Brazil Shipping

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We predict steady growth in Brazil's shipping sector over our forecast period, although we will not see a return to the double digit growth seen in 2010 and 2011. Our more moderated view of growth in the country's ports is on the back of a cautious economic outlook for the country. Brazil will remain mired in a period of low growth in the coming years, due to a slowing consumer story, persistent business environment challenges, and a weaker external environment. A more substantial contraction in real GDP in Q214 than we anticipated has prompted us to revise down 2015 headline growth forecast.

We have grown increasingly pessimistic on Brazil's economic outlook, revising down our 2015 forecast to 1.5% from 2.1%, following a weak Q214 growth print. Real GDP contracted by 0.9% year-on-year (y-o-y) in the second quarter - weaker than our expectations and Bloomberg survey estimates of -0.6% y-o-y - on the back of an 11.2% y-o-y contraction in...

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Telecommunications

Brazil Telecommunications

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BMI View: All four of the leading mobile operators in Brazil have reported a positive response to the launch of 4G LTE services since H113, boosting subscriber growth to 1.310mn by the end of the year. This has come at the right time for the mobile market, which has seen growth slow down considerably, as it reaches a saturation point. Opportunities for revenue growth will come from the value-added services such as M2M and m-commerce as the market matures beyond a prepaid centric environment of subscription acquisition maximisation . In the broadband market, Anatel has been active in trying to enhance competition, reducing licence fees for operators wishing to provide multiple services and the potential entrance of VTR ( Liberty Global ) is reportedly due...

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Tourism

Brazil Tourism

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BMI View :   With the World Cup now behind, Brazil is likely to focus on completing planned infrastructure projects and preparing for the 2016 Olympic Games. However, key challenges for the tourism industry in 2015 include the recession in Brazil and the likely slowdown in tourist arrivals from Argentina.

The Brazil Tourism Report examines the significant long-term potential being offered by the local tourism industry, especially as the country will host the Olympic Games in Rio de Janeiro in 2016. However, the report also highlights long-term structural weaknesses facing Brazil's tourism market, particularly in the realm of national transport infrastructure and the shortage of hotels across the country. The latter issue indicates long-term development potential but could lead to supply shortages during the major sporting events. The report also...

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Water

Brazil Water

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BMI View: We have extensively updated and expanded our Brazil water forecasts, including those for non - mains, and agricultural consumption, water losses and wastewater treatment methods. Overall, we believe that the pressures stemming from the ongoing drought, in conjunction with rising industrial and agricultural water demand, will stimulate heavy investment into water reuse, wastewater treatment facilitie s and the expansion and improvement of the distribution and collection networks.

Irrigation water areas are rising, albeit gradually, from 4.5mn hectares in 2006, to 5.4mn hectares in 2008, and 5.8mn hectares in 2012. We now forecast agricultural water consumption to see steady growth over the coming...

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