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.

Country Risk

Brazil Country Risk

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Core Views

  • Brazil is in the midst of an economic policy shift. A new economic team will begin reversing the fiscal deterioration seen in the last few years and the central bank is more strongly committed to reining in inflation. That said, these shifts will be slow to translate into stronger real GDP growth given a number of domestic and external headwinds.

  • We see little upside for Brazilian real GDP growth in the next few years. Significant headwinds to fixed investment and private consumption will see real GDP contract by 1.7% in 2015 before returning to growth of just 0.9% in 2016.

  • A greater commitment to tackling inflation will see the central bank hike the benchmark Selic target rate by another 75 basis points (bps) to 14.50% by end-2015. This will bolster the bank's inflation fighting credentials but will not succeed in...

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Brazil Operational Risk Coverage (9)

Brazil Operational Risk

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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....

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Brazil Crime & Security

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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 cyber attacks. 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. 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 appeal for international terrorists, and large and relatively competent armed forces. Brazil is...

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Brazil Labour Market

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BMI View: The Brazilian labour force possesses many strengths, including a relatively large pool of workers with degrees and rising numbers of university graduates from technical or science programmes. The large size and urbanised nature of the labour force also results in a wide pool of labour available for recruitment. 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...

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Brazil Logistics

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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...

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Brazil Trade & Investment

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BMI View: Brazil presents substantial 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, the business environment is hampered by significant bureaucracy, government intervention in the form of onerous taxes, lingering corruption issues, and an overburdened judiciary. 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. These...

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Brazil Industry Coverage (24)

Agribusiness

Brazil Agribusiness

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BMI View: We believe that grains production growth over the next five years will slow relative to the preceding five. Nevertheless, we forecast strong grains production growth through to the end of our forecast period. Soybean production will outpace that of corn output, as lower production costs for soybean relative to corn will make the commodity more attractive to grow. We also see strong growth in the livestock and dairy sectors, as these will continue to benefit from Russia's ban on imports of US products, which is likely to end in August 2015. 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 and the significant depreciation in the real over the past several months. Real weakness will be a net positive for the country's agricultural sector.

...

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Autos

Brazil Autos

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Due to Brazil's worsening macroeconomic outlook, BMI forecasts a 24.1% drop in vehicle sales in 2015 followed by weak 1.4% growth in 2016, as declines in the passenger car segment are outpaced by stronger declines in the commercial vehicle (CV) segment.

We forecast a 22.8% decline in passenger car sales in 2015 with sales reaching below 2.16mn units for the year. Rising borrowing costs and increased vehicle prices will provide added drag to the passenger car market, which is already becoming hamstrung by falling consumer confidence and spending as Brazil's economy moves into a period of restructuring and widespread job shedding.

In 2015, BMI expects to see a 29.3% decrease in CV sales. More specifically, we forecast light commercial vehicle (LCV) sales to drop 27.0% to 393,527 units as borrowing costs and falling investment spending will limit business...

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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: We made a significant downgrade to the growth outlook for Brazil's consumer electronics market in the Q3 2015 update to reflect our Country Risk team's bearish outlook for economic growth and performance of the real in 2015. Looking beyond the short-term downside we believe there still exist major growth opportunities such as 4G smartphones as operators expand the reach of networks and promote services, low-cost Android tablets, Wi-Fi-enabled and HD TV sets. Over our forecast to 2019 income growth and declining device prices will deepen the consumer electronics market, the key...

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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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BMI View: We forecast real private consumption growth at 1.3% in Brazil, down from 1.5% in 2014 and which compares to 1.5% in 2014 and 2.6% in 2013, on the back of anaemic GDP growth. A less favourable external environment in light of an ongoing slowdown in Chinese growth, a poor domestic business environment and lack of export competitiveness pose significant headwinds to growth. Although we previously argued that Brazil was in the early stages of an economic policy shift with the appointment of an investor friendly Finance Minister Joaquim Levy, we expect investor pessimism to rise, on the back of the economic recession, high inflation, currency weaknesses and the potential for delay in fiscal reforms 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...

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Freight Transport

Brazil Freight Transport

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BMI View: Despite a subdued outlook for Brazil's economy, we expect steady increases in mining and agricultural output will ensure tepid growth in freight volumes in the coming years. 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 vis-a-vis airfreight.

The Brazilian economy will enter recession in 2015, for the first time in six years. We are currently forecasting real GDP to contract by 1.7% this year, before returning to growth of 0.6% in 2016. These forecasts are below Bloomberg consensus estimates for a 1.0% contraction in 2015 and growth of 1.2% in 2016. Major headwinds to private consumption and a slow resolution of the corruption scandal at national oil company Petrobras...

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Information Technology

Brazil Information Technology

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BMI View: A worsening economic outlook for Brazil resulted in a downgrade to our forecast for the IT market in 2015, with a sharp contraction in US dollar terms now forecast. The revision is based on our Country Risk team's forecast for sharp real depreciation against the US dollar and a real terms contraction in GDP in 2015. However, looking past short-term downside, the growth outlook is positive - the 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 retail hardware spending, with...

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Infrastructure

Brazil Infrastructure

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BMI View: Government budget cuts and the ongoing implications of Operation Lava Jato have seen downgrade growth for Brazil's construction sector, and we now anticipate a recession in 2015 and 2016. The new BRL169bn logistics investment programme (PIL) will provide limited respite to the recession, as we expect take-up to be limited in the current climate. Over the longer term the scandal could force a much-needed restructuring of the Brazilian construction sector.

In June 2015, the Brazilian government announced the new PIL, which is effectively a continuation of the transport concessions programme - including some projects carried over. Despite the size of the scheme, with BRL69.2bn in concessions expected to take place between 2015 and 2018, we see limited prospects for the plan to reverse the recession over 2015-2016. In particular, we believe in the current...

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Insurance

Brazil Insurance

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BMI View: Brazil's insurance market faces continued headwinds going into H215. A challenging economic outlook that includes a forecast contraction in GDP, rising interest rates and weakening real threaten to undermine growth in both life and non-life insurances lines. The situation will be accentuated by the fact that a number of insurance segments are already quite mature, with these markets typified by a relatively high level of penetration and considerable competition between providers. That said, a large and growing population will continue to offer some opportunities for insurers over the medium term, particularly in some non-core markets.

Brazil's insurance sector is...

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Medical Devices

Brazil Medical Devices

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BMI Industry View: The relatively low density of the medical device market means Brazil will continue to offer considerable potential for expansion, despite sluggish economic growth 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...

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Metals

Brazil Metals

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BMI View: Metals production and consumption in Brazil will remain vulnerable heading into 2015 on account of persistently high energy costs and weak economic growth. However, accelerating growth in the years ahead, driven by gains in the automotive, construction, and infrastructure sectors, will underpin expansion in the metals sector.

Stronger Outlook By Latter Half Of Decade

Metals consumption and production will face headwinds into 2015 on account of modest economic growth ( see 'Growth To Disappoint Again In 2015,' November 5). We forecast real GDP growth of...

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Mining

Brazil Mining

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BMI View: Brazil's mining sector will grow steadily over our forecasts to 2019. However, the country's mining industry's value growth will slow over the coming years. Still, mine output will expand as both domestic and foreign firms increase production of both industrial and precious metals.

Brazil's mining industry value will grow 3.3% on average per annum to 2019, largely on the back of iron ore sector investment and output. Iron ore makes up around 85% of the country's total mining export value, though weak prices will mitigate the positive effect of growing...

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Oil & Gas

Brazil Oil & Gas

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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. In the near term, we hold a more bearish view, as lower oil prices and decreased capex funds dampen upstream investment. As such, despite tremendous below-ground potential, 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.

Headline Forecasts (Brazil 2013-2019)
...

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Petrochemicals

Brazil Petrochemicals

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BMI View: Owing to a poor market outlook and the orientation of Brazil's manufacturing industry towards the domestic market, rather than export markets, we are becoming more bearish on the country's petrochemicals production. A likely economic recession in 2015 will be accompanied by additional factors affecting the industry, including the Petrobras corruption scandal which will exacerbate poor industry performance.

In Q115, chemicals consumption declined slightly, although Brazilian producers still managed to increase sales in the domestic market at the expense of imports. This reversed a trend in which local producers were losing market share and was largely related to the weakening of the Brazilian real. However, producers remain circumspect about the prospects for the sector in coming months due to the poor end-market environment...

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Pharmaceuticals & Healthcare

Brazil Pharmaceuticals & Healthcare

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BMI View: With a focus on increasing foreign investment, an expansion of telehealth and a steadily growing burden of chronic diseases, Brazil will continue to offer commercial opportunities as the demand for medical provision as well as access to necessary healthcare improves in the country. Limited drug approvals and the Ministry of Health's implication within the Petrobras scandal will, however, continue to generate risks within the market.

Headline Expenditure Projections

Pharmaceuticals: BRL62bn (USD26bn) in 2014 to BRL66bn (USD21bn) in 2015; +6.2% in local currency terms and -2.6% in US dollar terms. Forecast in has been revised upward from Q115...

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Power

Brazil Power

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BMI View: Brazil's power sector will offer abundant investment opportunities in the generation, transmission and distribution sectors over the next 10 years - due to its vast size, growing power needs and the government's commitment to expanding power supply through power capacity auctions. Nevertheless, the market's vast potential is hindered by its heavy...

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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 increasingly 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 deteriorated throughout...

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Renewables

Brazil Renewables

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BMI View : The prolonged droughts and economic struggles continue to pressure the hydropower dependent Brazilian energy sector to diversify. Although recent auctions did not bring the desired results for wind power, we expect strong growth in non-hydropower renewable energy generation and capacity as a whole over the course of 2015 and the coming years, carried also by a strong wind sector. Solar power will see the largest year-on-year growth and is expected to reach the 1GW capacity mark by 2018. Despite these positive forecasts, the economic situation with a weak real and increasing interest rates by the Brazilian Development Bank, BNDES, are currently undermining the...

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Retail

Brazil Retail

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BMI View : While household spending still looks to grow in 2015 in BRL terms, the recent combination of higher interest rates, higher inflation levels, and contracting credit availability has led to a downward revision of our retail sales growth projections. . In USD terms however, this downward revision is augmented by the recent drop in value of the BRL relative to the USD, leading us to forecast...

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Shipping

Brazil Shipping

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BMI View: We see no respite for Brazil's current account in the coming quarters. Weaker Chinese demand for iron ore and lower global metals prices will continue to depress the country's key commodity exports, proving to be a drag on the Brazilian shipping industry as a result. Moreover, the country's manufactured goods exports will be unable to pick up the slack (see 'Lower Oil Prices Offer Limited Respite For Current Account', January 7).

For 2015, we anticipate the main Brazilian ports to see container throughput annual growth to outperform that in the tonnage sphere. At the country's largest port at Santos, we have penciled in year-on-year box growth of 6.35% in 2015, while tonnage is expected to come in at 3.20% over the same period, arresting the slump in growth experienced in 2014. Annual tonnage...

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Telecommunications

Brazil Telecommunications

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BMI View: The Brazilian telecommunications sector is expected to see a number of wide-scale acquisitions and consolidation this year, which is likely to see the structure of the sector reorganised. Three largest MNO's - Oi , Claro and Telefonica 's subsidiary Vivo - are reportedly planning to bid about USD15bn for TIM Participacoes . Brazil's telecom regulator Anatel recently approved Telefonica's acquisition of Vivendi 's GVT , while America Movil's ...

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Tourism

Brazil Tourism

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BMI View : Brazil is well on track for the 2016 Olympic Games in Rio, which we expect to result in a surge of tourist arrivals. There will be a large number of hotel openings ahead of the Games, boosting room supply, although we expect expansion in the hotel sector to moderate after this point.

Brazil's tourist market is one of the largest in the region, benefiting from the country's size, which enables it to offer a variety of attractions, including beaches, city breaks, Amazon adventures and mountain exploration. Although more expensive than many of its regional peers, it is becoming increasingly popular among Latin American tourists. In addition, a sustained marketing campaign, plus the successful hosting of the FIFA World Cup in 2014, has expanded its international profile, boosting arrivals from North America and Europe.

We hold...

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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 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...

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