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 informed 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.
Brazil Country Risk
Over the long-term, Brazil will only experience modest levels of growth as structural headwinds limit any quick economic solutions to the challenges faced from falling global commodity prices. Growth will only return to the economy following two consecutive years in recession in both 2015 and 2016.
Widespread public unrest, sweeping corruption scandals, and deepening polarisation will keep political risk elevated over the coming quarters, weighing on investor sentiment and contributing to extreme uncertainty in terms of policy direction. Over a multiyear timeframe, the Brazilian electorate will demand progress on promised reforms, including higher-quality public services and greater government transparency.
Major Forecast Changes
We forecast that the real will average BRL3....
Brazil Operational Risk Coverage (9)
Brazil Operational Risk
Brazil Operational Risk
BMI View: As one of the largest economies in the world, with considerable opportunities for development in key sectors, Brazil holds huge appeal to foreign investors. However, the country's economic potential continues to be constrained by a difficult operating environment, characterised by complex regulatory and legal systems, high levels of government intervention in the economy, an inadequate logistics network, and exorbitant labour costs. In addition, investor sentiment is dented by the poor rule of law, with criminal gangs remaining prevalent in many areas and corruption scandals frequently rocking the establishment. Brazil's huge investment potential means that many companies are willing to overcome these substantial obstacles, but structural economic and legal reforms will be necessary before the country is able to offer a stable, welcoming and open operating environment. Consequently, Brazil is...
Brazil Crime & Security
Brazil Crime & Security
BMI View: The most significant security risk facing foreign workers and businesses in Brazil is its high crime rate, particularly with regard to violent crime and cyberattacks. Indeed, while the rates of theft, assault and homicide have remained steady in the last few years, they still remain among the highest in Latin America. Powerful criminal organisations conduct activities in all regions, including affluent areas, although the urban centres of Rio de Janeiro and Sao Paulo are a major focus of security forces' efforts and have seen some reduction in criminal activity. The transition of criminal gangs into the digital sphere is also becoming one of the country's most pertinent security risks. In contrast, the threat of terrorism or interstate conflict disrupting business activity in Brazil is negligible, due to the lack of domestic insurgent groups, limited...
Brazil Labour Market
Brazil Labour Market
BMI View: Brazil offers incoming businesses a sizeable and diversified labour pool with a rising number of university graduates from technical or science programmes, relatively high female participation rate and large urban population. However, hiring Brazilian workers entails significant costs, even for low-skilled positions, due to mandatory minimum wages and labour taxes, while demand for highly skilled staff further pushes up the cost of employment. Other major drawbacks include inflexible labour laws with strict legal protection for workers, powerful and active unions, and increasing social unrest. Businesses therefore have limited flexibility with regard to setting wages and hiring and firing practices, and face a high risk of strikes and demonstrations disrupting production. Overall, Brazil has a Labour Market risk score of 47.7 out of 100, placing it in 32nd place among 42 countries in the...
BMI View: Brazil's 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 prices, but soaring demand means it is overstretched, and droughts have led to frequent water and power shortages, compromising 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 infrastructure is underway, the burden placed by economic and population growth will ensure that the risk of disruption to...
Brazil Trade & Investment
Brazil Trade & Investment
BMI View: Brazil offers numerous opportunities for foreign investors, with abundant natural resources and a growing middle class consumer base among the main attractions of the country's vibrant economy. However, significant bureaucracy, government intervention in the form of onerous taxes, lingering corruption issues, and an overburdened judiciary present obstacles to businesses operating in the country. In particular, the huge corruption scandal engulfing state-owned oil company Petrobras has plunged the economy into recession and heightened investor caution towards Brazil over the short term. Brazil therefore ranks 20th out of 42 Latin American states in the overall BMI...
Brazil Industry Coverage (22)
BMI View: We believe that grains production growth over the next five years will slow relative to the preceding five. Soybean production will outpace that of corn, as lower production costs for soybean relative to corn will make the commodity more attractive to grow. However, we see comparatively limited growth out to 2019/20 given the scarcity of area available for expansion, as well as high import costs for fertilisers. We hold a more positive view on the sugar industry now than we have held in the past, due to reforms in the ethanol sector. The eventual return of real weakness will be a net positive...
BMI View: Brazil's new vehicle market will return to growth in 2016 but will remain at historically low volumes. Upward pricing pressures, tightening lines of credit, consumer and business deleveraging and general economic stagnation will continue to drag on market performance.
|Passenger Car and Light Commercial Vehicle Sales|
|f = BMI forecast. Source: National Association of Motor Vehicle Manufacturers (Anfavea), BMI|
Brazil Commercial Banking
|Date||Total assets||Client loans||Bond portfolio||Other||Liabilities and capital||Capital||Client deposits...|
Brazil Consumer Electronics
BMI View: Brazil's large electronics industry provided little insulation to the market in 2015, as a reliance on imported components and a sharp deterioration in household purchasing power resulted in a sharp contraction in spending on consumer electronics devices. We expect another year of contraction in 2016 as the economic and political crisis continues to evolve in Brazil, but the decline should not be as steep as in 2015. Conditions are expected to be less hostile from 2017 as growth returns and the currency stabilises, and there is potential for a bump in spending as deferred purchases are unlocked, but we caution that downside risk is elevated. Under our core scenario, we envisage a total device spending CAGR of 9.5% over 2016-2020.
Latest Updates & Industry Developments
Defence & Security
Brazil Defence & Security
BMI View: We expect Brazilian defence expenditure to contract in 2016 amid the recession; however, it will remain at around 1.3% of GDP, and return to growth over the medium term as economic conditions improve. Defence spending will be driven by factors such as the country's efforts to reduce crime levels, prevent illegal activities in the Amazon, and contribute to international peacekeeping missions. Brazil has the largest defence budget in the Latin America region, and is able to invest significantly into procurement of military equipment and defence R&D. This enables the domestic defence sector to continue to develop, increasing export potential, and gradually allowing it to capture a large share of the Brazilian MoD's procurement contracts. Over the long term, therefore, we expect defence exports to grow at a faster pace than imports.
Food & Drink
Brazil Food & Drink
BMI View: The Brazilian consumer faces a dim outlook over 2016, on the back of a deepening recession. A weak economic environment characterised by slow job creation and high inflation will continue to constrain private consumption growth. As a result the food and drink industry will contract in US dollar terms over 2016.
|Food and Drink Spending|
Brazil Freight Transport
BMI View: We expect steady if lacklustre growth in Brazil's freight sector in the coming years, with tepid increases in mining and agricultural output ensuring demand remains elevated. We caution that a more robust expansion will be prevented by a slowdown in the consumer sector, weak global commodities and a lacklustre external picture. As a result, we expect the road and rail sector will display the largest gains.
Brazil's economy will remain in recession in 2016 after dipping below zero in 2015, for the first time in seven years. We forecast real GDP to contract by -0.8% in 2016 following a contraction of -2.7% in 2015. Major headwinds to private consumption and a fixed investment via a slow resolution of the corruption scandal at national oil company Petrobras will be the primary driver of the slowdown, with unemployment...
Brazil Information Technology
BMI View: Risk remains elevated in Brazil with an ongoing corruption scandal and impeachment proceedings, while the economic environment is still a negative in 2016. We therefore expect another year of local currency IT spending contraction, and sharp decline in US dollar terms due to currency weakness, but performance will not be as bad as in 2015. Looking further ahead, we expect a gradual recovery from 2017 as sentiment improves and purchasing power recovers, which should unlock deferred spending from 2015 and 2016, but we caution that downside risks feature heavily in our outlook even over the medium term. Our core scenario is for IT spending is forecast to increase at a CAGR of 8.6% over 2016-2020.
Latest Updates & Industry Developments
Computer Hardware Sales: BRL37.0bn in 2016 to BRL49.5bn in 2020. A...
BMI View: Brazil's construction industry will remain in recession in 2016 and return only to weak growth in 2017. Major structural changes to infrastructure policies under interim President Michel Temer have the potential to improve the investment environment over the multi-year horizon, however, for 2016-2017 it creates greater uncertainty and will limit construction activity.
Latest Updates And Structural Trends
We have downgraded our construction industry value real growth forecast for 2016, with the industry now expected to contract by 3.4%. A 6.2% contraction was reported for Q1 2016, while employment in the sector continues to fall in 2016, down 13% y-o-y in Q1 2016, following a 10% fall in 2015. With limited visibility over new infrastructure concessions plans, we are cautious...
BMI View : Brazil's insurance sector will continue to buck wider economic trends over the next few years, with both life and non-life insurers well places to grow their businesses and achieve growth in underwriting volumes. In fact, uncertainty surrounding Brazil's economic and political outlook may well serve as a driver for premium growth as consumers turn to life insurance products as a conduit for savings and investments. The need for long-term financial security will be underpinned by an ageing population and growing retirement-age demographic. These trends are drawing interest from overseas investors, with France's CNP Assurance one of a number of multinationals increasing their exposure to the market. Likewise, an extensive health insurance segment will continue to drive non-life premiums as Brazilians hedge against reduced levels of state...
Brazil Medical Devices
BMI Industry View: The relatively low density of the medical device market means Brazil will continue to offer considerable potential for expansion, despite a contracting economy and a depreciating real, which is making imported products more expensive. We forecast that the import share, which is already lower than in other parts of Latin America, will fall still further over the longer term given the current drive to expand domestic production into new product areas through technology transfers. The recent decision to grant tax breaks to domestically-produced devices will provide an...
BMI View: Brazil's iron ore sector will drive the country's mining industry growth, supported by low operating costs and vast reserves. Meanwhile, consistently weak mineral prices will weigh on production growth in other sectors.
Oil & Gas
Brazil Oil & Gas
BMI View: Brazil's vast pre-salt reserves suggest substantial growth potential over the long term, underpinning our bullish upstream view that crude, natural gas, and other liquids output will rise throughout our forecast period. However, production growth will be limited by lower oil prices and decreased capex funds. As such, we maintain a relatively modest outlook, reflecting our view that the above-ground environment remains a considerable obstacle to the upstream and downstream segments due to weakening project economics, waning investor confidence, and a burdensome regulatory environment.
BMI View: Cheaper oil has lowered the cost of naphtha, Braskem's main raw material, thereby improving competitiveness. However, the Brazilian petrochemicals industry still endured one of the worst years in two decades in 2015 due to the domestic economic recession. Recessionary trends are expected to continue in 2016, severely affecting petrochemicals end markets. Margins will be determined by success in reducing electricity costs and the price of oil, which has a direct bearing on the cost of naphtha. The naphtha-ethane price differential will have a major impact on Brazil's ability to compete with new ethane-based production in the US.
Chemicals accounted for 24% of imports and 7% of exports in the January-April 2016 period. The chemicals trade deficit reached USD6.4bn in the first four months of 2016, down...
Pharmaceuticals & Healthcare
Brazil Pharmaceuticals & Healthcare
BMI View: Brazil's pharmaceutical market will become increasingly unattractive to pharmaceutical companies due to the growing fiscal tightening in the country. Multinational drugmakers will face the risk of revenue decreases, due to increasing generic competition and more intensified cost-containment measurements.
Headline Expenditure Projections
Pharmaceuticals: BRL62.0bn (USD26.4bn) in 2014 to BRL65.8bn (USD19.8bn) in 2015; +6.1% in local currency terms and -25.0% in US dollar terms. Forecast in has been revised down from Q415....
BMI View: We maintain that the Brazilian electricity market will offer opportunities to risk-tolerant project developers and power sector investors over the coming years, despite the country's deepening economic recession in 2016. The renewables and hydropower sectors will present the biggest potential to international investors, but we see opportunities also in power transmission and distribution. We also highlight, however, that lower power consumption, coupled with high financing and import costs will be significant risks to operating in the country in the short run.
Brazil Real Estate
BMI View: A redressing of the balance between supply and demand is characterising the real estate markets in Brazil in 2016, as large amounts of developments completed over the past years have resulted in over-supply. Therefore despite respectable demand, we do not see rental rates increasing over the coming year. We forecast transactional activity to pick up in 2017, off the back of the Olympic Year, which should see the nation's profile raise in time for new economic reform policy to be implemented, making Brazil a more attractive place in which to both invest and operate from.
With the economy headed towards recession, Brazil's property markets are under considerable pressure. We expect a rebound in the economy and the real estate sector to take hold from 2017 onwards. When the...
BMI View : As the wider economic downturn worsens, we expect growth in non-hydro renewables to decrease below previously forecast levels for 2015 and 2016. Although auctions in H215 showed stable interest, increasing obstacles such as high interest rates and a weakened currency have led us to further revise our already conservative overall estimates. Solar power has, nevertheless, experienced another upward revision for our long-run outlook; we now expect the sector to cross the 1GW capacity mark in 2017 - instead of...
BMI View: A weakening labour market, elevated inflation and tightening credit conditions will to continue weigh on Brazilian retail sales over 2016, with the non-essentials segment suffering in particular. That said, the country remains the largest market in Latin America and we expect a more pronounced recovery in consumer sentiment from 2017 onwards.
Brazil's economy is poised to deteriorate even further in the coming months on the back of additional job losses and elevated inflation in 2016. Labour market rigidity had long precluded rises in unemployment; even as the economy began to weaken in 2014, unemployment remained below 5.0%. Since then, we have seen a considerable deterioration, with unemployment rising to nearly 8.0% as of October 2015. Moreover, the public sector has...
BMI View: The challenging macroeconomic environment and the uncertain political outlook cast a long shadow over all sectors in Brazil, including telecommunications. Ambitious national broadband expansion initiatives, plans to abolish the legacy geographic wireline concessions system and the auction of mobile broadband spectrum all depend on political continuity, which hangs in the balance following the impeachment of President Roussef in Q216.
|3G/4G Offers Revenue Growth Options In Saturated Market|
|Brazil Mobile Market Forecasts|
|f = BMI forecast. Source: BMI,...|
BMI View: The next quarter will be a key one for Brazil's tourism market, which will expect the bulk of arrivals and receipts to be centred around the Rio Olympic Games in August. However, after this event we forecast a period of stagnation for the industry, with a post-event lull combining with domestic economic weakness to lower demand and investment.
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 facilities 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 years...