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

  • 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 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:   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: 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:   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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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: 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 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:   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 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 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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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: 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 :  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 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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