Our comprehensive assessment of Brazil's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Brazil, as well as the latest industry developments that could impact Brazil's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Brazil before your competitors.

Country Risk

Brazil Country Risk

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Core Views

  • With persistent currency weakness and rising interest rates set to temper private consumption growth, and fixed investment to receive only a moderate boost from the June 2014 FIFA World Cup and final year of the PAC II growth acceleration programme, we expect Brazil's economic recovery to falter this year. Indeed, we forecast real GDP growth of 2.0% in 2014, down from 2.3% in 2013.

  • Elevated inflation will keep interest rates high in the coming months, and we forecast one more rate hike to 11.25% before the central bank pauses. However, we maintain our view that the bank will switch focus from reining in inflation to stimulating growth by year-end, in line with our end-2014 Selic rate forecast of 10.75%.

  • While the widespread public protests begun in June have largely subsided, we believe that this marked a turning point for the...

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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: We believe that there will continue to be strong growth in Brazil's soybean sector, as farmers will choose to plant the crop instead of   corn over the next 18 months given more favourable soybean prices. Cotton will benefit from lower prices of corn and soybean ( relative to the last five years), as cotton acreage competes with these two crops. We also see strong growth in the livestock and dairy sectors, as these will b enefit from Russia's ban on imports of US products . In particular, we believe the poultry sector will perform particularly well, though it is unlikely to benefit from the Russian trade ban as much as beef and pork. We hold a more...

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Autos

Brazil Autos

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BMI forecasts a 4.6% drop in vehicle sales in 2014, as we expect the passenger car and CV segments to remain weak over the coming year.

We forecast a 6% decline in passenger car sales in 2014, as the broader slowdown in consumer spending and higher car sales taxes impacts the segment. In 2014, BMI expects to see 2.3% growth in the light commercial vehicle (LCV) segment, a slowdown from strong growth in recent years and a 15% drop in heavy truck sales. This relatively bearish outlook is due to the expected broader slowdown in the construction industry and ending of government tax incentives.

BMI has become increasingly bearish on the country's domestic sales and export outlook and believes this will weigh on output in 2014. Indeed, we forecast a 14.6% drop in total vehicle output over the coming year, a reversal from the 9.9% output growth seen in...

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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:   the outlook for consumer electronics spending in 2014 is weaker than in recent years as a result of a more challenging macroeconomic environment. However , the hosting of the FIFA World Cup should provide additional demand for TV sets and smartphones. Other g rowth areas will include 4G smartphones as operators expand the reach of networks and promote services, low-cost Android tablets, W i -Fi-enabled cameras and HD TV sets. The medium term outlook is stronger though, as income growth and declining device prices will deepen the consumer electronics market. Declining device prices are particularly significant in Brazil because of the reliance on...

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Defence & Security

Brazil Defence & Security

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BMI View: With the FIFA World Cup fast approaching, Brazil is making the final preparations for what will be the largest security operation ever undertaken on Brazilian soil. The security operation will involve 170,000 personnel from the police, military and secret service. With the international spotlight focused on Brazil it is no surprise that such substantial investment is being made to ensure a smooth and safe tournament. In many ways Brazil's World Cup is seen as means through which Brazil can improve its global reach and influence. Interestingly the first half of 2014 has seen Brazil make a concerted effort to increase its global influence by enhancing defence cooperation with partners.

During Q214 Brazilian Defence Minister Celso Amorim toured Angola, Mozambique and South Africa with the aim of enhancing cooperation in areas such as cyber-security, military training and military...

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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 2.2%, down from 2.6% 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 in 2014 and over our medium-term forecast period (2014-2018), across all modes. 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 Brazil's role as a major exporter of a host of commodities.

Nevertheless, there remain serious challenges to growth, and hence risks to our outlook. These stem from both the physical side - whether infrastructure development in the country will be sufficient to support our projected growth rates; and the human - the ports sector is already undergoing a wave of industrial unrest as workers contest the government's...

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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: We believe Brazil will struggle to sustain a rebound in construction sector growth over the medium term. Despite maintaining our outlook that growth will pick up between 2014 and 2018 as concessions enter construction and the residential market continues to rebound , 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.

However, we believe the USD235bn concessions programme will generate higher growth over the medium term, as construction gets under way on major road and airport projects. Over the coming...

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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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Espicom 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 growing market within BMI Espicom's Americas region. The country has a well-...

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Metals

Brazil Metals

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BMI View: We forecast refined metal production and consumption growth in Brazil from 2014-2018, with the automotive , construction , and infrastructure sectors being major drivers . While we maintain a constructive multi-year outlook, we expect 2014 will see relatively muted growth in the downstream metals sector on account of subdued private consumption and fixed-asset investment. We now forecast real GDP growth of 1.8% in 2014, down from our earlier forecast of 2.0%, though see growth accelerat ing in the years ahead.

Stronger Sector Performance In 2015 Onward

...

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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 the first four months of 2014, chemical output production fell 7.4% year-on-year (y-o-y) while producers' domestic sales declined 2.3%, according to the Brazilian chemical industry association Abiquim. By April 2014, the rate of capacity utilisation stood at just 75%, eight percentage points below the average recorded in the same month in 2013. On average, during the first four months of 2014, the utilisation rate was 78%, four percentage points down on the same period in 2013.

In the first four months of 2014, chemicals consumption fell 5.6%. BMI had expected a stronger slowdown in petrochemicals import growth in 2014, following 20.7% growth...

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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 continues to be one of the most attractive power markets in Latin America, due to its unmatched size, strong project pipeline and large prospective in the renewables and natural-gas fuelled thermal sectors. However, the country ' s power sector potential is hindered by regulatory and legal interjections, weak infrastructure and a heavy depend ence on increasingly unreliable hydroelectricity. Higher retail electricity prices and a slowing GDP expansion are the main risks to an otherwise robust power consumption growth forecast.

Recent investment into new power and renewables capacity in Brazil has been at its strongest rate in years - with over 7GW of new capacity...

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Real Estate

Brazil Real Estate

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BMI View:   Despite a relatively weak economic outlook in the short term, which will dampen rental rate growth in the rest of 2014 and into 2015, the commercial real estate has significant long-term potential. This is the result of Brazil's position in the global economy, as well as its domestic strengths, with a growing population and increasingly sophisticated domestic economy. This will be particularly apparent in the areas of retail and industrial real estate, with modern retailing increasingly popular and a demand for increasingly sophisticated supply chains leading to opportunities in logistics and warehouse real estate.

Despite some short-term economic weakness, with slow GDP growth, fixed investment and private consumption, as well as declining exports, we see longer term opportunities in the Brazilian economy in terms of the development of the country's...

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Renewables

Brazil Renewables

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BMI View : We are maintaining our forecasts for non-hydropower renewable energy generation in Brazil this quarter as recent developments in the sector are unlikely to impact our near-term forecasts. However, we have revised up our long-term forecasts for the sector to account for a surge in interest in solar energy.

We are maintaining our 2014 forecasts for non-hydropower renewable energy generation in Brazil this quarter. While there were a number of major developments in the sector over the third quarter of 2014, these developments are unlikely to have any foreseeable impact on our forecasts over the near term.

We have revised up our long-term forecasts for non-hydropower renewable energy generation and capacity in Brazil this quarter due to the improving outlook for solar energy. We are now forecasting non-hydropower renewable generation to...

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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 60 % 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 budget store formats, particularly in the MGR sector, and we expect this trend to continue.

The 2014 FIFA World Cup and 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 beer and soft drinks ahead of the country's hosting of the FIFA World Cup is likely to affect volume sales in...

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Shipping

Brazil Shipping

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Brazil's weak Q114 GDP print helps confirm our view that the economy will continue to see tepid growth in the coming years as the consumption story dims and investment has yet to pick up meaningfully. We have downgraded our headline real GDP growth forecasts for 2014 and 2015 to 1.8% and 2.2% respectively, primarily owing to a weakening outlook for fixed investment.

Weakening investment and private consumption growth in Brazil's Q114 GDP release highlight the continued challenges facing the economy, and inform our view that slow growth is here to stay for several years. We have downgraded our 2014 and 2015 headline real GDP growth forecasts to 1.8% and 2.2% respectively, from 2.0% and 2.4%. This implies that growth will remain broadly in line with the headline print for Q114, which came in at 1.9% year-on-year (y-o-y), in the next few quarters.

Growth forecasts for Brazil's shipping industry are set to be impressive...

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Telecommunications

Brazil Telecommunications

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BMI View:   Telefónica 's bid for wireline operator GVT has been accepted, beating out rival offers from Telecom Italia . BMI highlights the greater potential for converged service offerings for Telefónica on completion of this deal, leveraging its superior mobile subscriber base into expanded multiplay offerings with fixed line telephony, broadband internet and pay-TV services. The Brazilian market continues to record growth in these four sectors and there are attractive opportunities in the broadband internet and pay-TV segments in particular. Telefónica faces strong competition in this arena from Amé...

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Tourism

Brazil Tourism

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BMI View :  The successful holding of the FIFA World Cup in June-July this year proved a relief to the Brazilian authorities and served to promote Brazil as a tourist destination. Despite some infrastructure problems, we believe that the image of Brazil was largely positive, which should bode well for long-term tourism prospects.

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 believe that while the overall trend in the provision of water and sanitation services in Brazil has been one of improvement over recent decades (particularly in urban areas) vast differences in service provision persist, and while the gap in service provision is likely to continue to narrow over the coming years, this will require substantial investment from both the public and private sectors. In particular, we see key risks of undersupply affecting domestic and industrial consumers alike due to the combination of severe droughts and the influx of visitors ahead of the 2014 FIFA World Cup and 2016 Olympic Games.

In Brazil, project delays are a serious concern, with around USD55bn worth of projects currently suspended, delayed or cancelled altogether, equivalent to nearly 17% of the total. We also remain concerned about the number of new projects in the pre-tender phase and are...

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