Short-Term Risk: Easing monetary policy and a high level of international reserves will result in benign liquidity
conditions for the commercial sector over the short term.
Medium-Long Term Commercial Risk: Brazil is characterized by a still-strong banking sector, lack of nancial
dollarization and low dependence on foreign borrowing. The government will continue limiting short-term money
inows if necessary to prevent the formation of asset bubbles in the economy, while banking regulation will be
strengthened to deal with rising household indebtedness.
Sovereign Risk: The few years of solid global demand prior to the nancial crisis have helped the government
to lower external debt, smooth its debt maturity prole and improve currency and interest rate dynamics. As a
result, external debt metrics are healthy and nancing needs will continue to be mostly absorbed by the domestic
market. Still, scal exibility is limited and requires discipline.
Brazil
Colombia
Venezuela
Chile
Mexico
0
25
50
75
100
125
150
175
200
0
25
50
75
100
125
150
175
200
President
Dilma Rousseff
Government Position
Federal Republic
Next Elections
October 2014
Nominal GDP (2011)
USD 2.3 trillion
Total Trade/GDP (2011)
19%
Exchange Regime
Free oat
Merchandise Imports
from Canada (2011)
CAD 2.7 billion
Main Imports
Machinery, equipment, chemicals
Sources
Haver, EIU, Statistics Canada
Risks to the Outlook
Further progress on
microeconomic reforms
A sharp reversal in capital ows
or asset bubble formation
Country Stats
Economic and Political
Intelligence Centre
epic@[Link]
Country Overview: President Dilma Rousseff took ofce January 1st, 2011, backed by a ten-party coalition representing
70% of Congress. Political progress requires constant horse-trading that slows the passage of fundamental reforms
such as tax policies, widely considered necessary to maintain scal sustainability and to accelerate growth to a level
that will continue to move Brazil forward. Despite a cyclical economic slow-down this year, EDC Economics expects the
economy to pick up speed on the back of scal stimulus aimed to revive the industrial sector and maintain consumer
spending, low levels of unemployment, robust credit growth, poverty reduction initiatives and public investment in
infrastructure. GDP grew 2.7% in 2011 and is forecasted to expand by around 0.8% in 2012 and 3.4% in 2013.
Trade and Investment Environment: With the goal of stimulating the domestic industry, the government has recently
put in place a signicant stimulus package (amounts to about 1.4% of GDP, of which 1.1% of GDP quasi-scal and
0.3% scal) that consists of export credit, tax cuts, subsided credit from BNDES, national public procurement plans,
import taxes hikes for around 100 goods, a reduction in red tape and custom controls enhancements. Massive capital
inows and FX intervention have allowed foreign exchange reserves to grow to around US$ 378bn in October, which
supports a strong liquidity ratio. Despite forecasting a Current Account decit, EDC Economics does not anticipate
any nancing problems over the next two years, as Brazils external nancing requirements are comfortably covered
by net foreign direct investment (FDI) and portfolio inows. In sum, Brazils net external creditor position and strong
external liquidity will continue to mitigate risk of external shocks.
Outlook: Over the short term, downside risks include uncertainty about the magnitude of the global slowdown, as well
as concerns associated with delays in infrastructure projects. The government also needs to continue strengthening
banking regulations to deal with rising household indebtedness and debt servicing costs relative to income. In the
medium term, some structural reforms need to be undertaken to ensure sustainable growth and improved scal
exibility. The FIFA World Cup and the Olympics offer excellent opportunities for exporters and investors over the
next 2-4 years. Nonetheless, state intervention in the economy is likely to continue with Brazils policy of supporting
national champions companies that can perform well in both the domestic and international markets.
EDC does not represent or warrant the accuracy or completeness of the contents. This information is presented for informational purposes only and is not to be relied upon
by the reader.
3.5839 in
1.717 in
-15
-10
-5
0
5
10
-10.0
-5.0
0.0
5.0
10.0
2008 2009 2010 2011 2012(f) 2013(f)
BRAZIL February 2013 Economics
Sources: Haver, EIU, EDC Economics Source: World Bank
Ease of Doing Business: Regional Comparison (best=1) Economic Indicators
GDP growth Fiscal Balance
Current Account (% GDP)
