Brazil - macro analysis for investors: threats

Economic Policy Strategy on Brazil

International Political Economy
Economic Policy Strategy on Brazil

International Political Economy

By
Serge AbiHaidar
Cristina Álvarez
Elias Bassil
Priscilla Bastos
David Buccelli
Mark Chanel

By
Serge AbiHaidar
Cristina Álvarez
Elias Bassil
Priscilla Bastos
David Buccelli
Mark Chanel

Macroeconomic Risks for Brazil
GDP
While there are many factors affecting GDP, which are detailed below, a key risk is the overall growth rate of Brazil. From an investment standpoint, many models are based on history and incorporate the strong GDP growth Brazil has demonstrated for quite some time. Forecasts had previously predicted that Brazil’s growth rate would slow from 7.5% in 2010 to 4% in 2011 (International Monetary Fund, 2012). However, actual GDP growth has been well beneath that. The most recent data shows a relatively modest quarter over quarter growth rate of 0.4%, well below previous forecasts or expectations. There is risk that this could continue.

Social Investment
Another key risk is Government spending on social investment. President Rousseff has a goal of eradicating extreme poverty in the country and these expenditures have been financed through taxes (International Monetary Fund, 2012). Unfortunately, this money has taken away from possible investments in infrastructure and businesses, and prevents Brazil from quickly tackling its debt. As this spending is politically motivated, there is not a great deal of certainty regarding the level of future social investments. Currently, as a percentage of GDP, Brazil’s spending is nearly on par with Europe, and well above many other regions (International Monetary Fund, 2012).

General Macroeconomic Instability
While Brazil’s performance has been good as of late, one cannot discount general macroeconomic instability as a substantial risk of doing business there. Over the last 25 years, the Brazilian landscape has been marred