Economists in Brazil are starting to lower their expectations for a turnaround in 2013. If 2011 was bad, and 2012 is supposed to be flat, why are 2013 growth forecasts being revised downward?
The Central Bank’s weekly Focus survey of the country’s leading economists from the bulge bracket in Brazil say GDP in 2013 will come in at 4.1%, down from previous estimates of 4.2%. This year’s estimate remains at just 3.3%, a stark contrast from 2010 China-style growth over 7%.
The survey also showed a decline in certain sectors, most notably Brazil’s industrial sector. That sector’s GDP is expected to be 2.7% this year, down from 2.8%. A month ago it was 3.3%.
Brazil’s BM&F Bovespa stock index is on the rise, even with hopes fading of a stronger 2013 following what is perceived to be a year of muddling through. The iShares MSCI Brazil (EWZ) exchange traded fund is up over $10 a share, or 19% year-to-date.
“The market got ahead of itself,” says Heiner Skaliks, fund manager at the Strategic Latin America Fund (SLATX). “We don’t think now is the time to be buying Brazilian equities.
If you bought at the end of 2011, you got the timing right. Now is not the time.” Skaliks says he prefers dollar denominated Brazilian corporate debt.
Lower expectations is also somewhat of a surprise considering interest rates are on the decline. Brazil’s benchmark interest rate is 10.5% and will likely fall to single digits this year.
One risk to the economy is the possibility that the Central Bank mistimed its rate cut, even as inflation remains at the high end of its tolerance band, around 5.5% currently.
Should the global economy pick up more than everyone is forecasting, then Brazil risks having to raise rates again by the end of 2012. Those start-and-stop cycles could pose a risk to the Brazilian economy, though it is unlikely they would pose too big a risk.
If the global economy did improve, and no one is forecasting this, then China, the U.S. and Europe would have more demand for Brazilian goods. That would likely lead to more foreign investment into Brazil, both from corporate interests and portfolio investors.
“This year is looking like a crunch year for the euro zone, so we would assume that 2013 would be an improvement. But hold on a second. China is slowing and everyone expects the economy to be slower there next year.
This could all keep Brazil growth in check, though I think the economy will definitely do better next year than it does in 2012,” says Robert Wood, Senior Latin America Economist for The Economist Intelligence Unit in New York.
forbes.com
The Central Bank’s weekly Focus survey of the country’s leading economists from the bulge bracket in Brazil say GDP in 2013 will come in at 4.1%, down from previous estimates of 4.2%. This year’s estimate remains at just 3.3%, a stark contrast from 2010 China-style growth over 7%.
The survey also showed a decline in certain sectors, most notably Brazil’s industrial sector. That sector’s GDP is expected to be 2.7% this year, down from 2.8%. A month ago it was 3.3%.
Brazil’s BM&F Bovespa stock index is on the rise, even with hopes fading of a stronger 2013 following what is perceived to be a year of muddling through. The iShares MSCI Brazil (EWZ) exchange traded fund is up over $10 a share, or 19% year-to-date.
“The market got ahead of itself,” says Heiner Skaliks, fund manager at the Strategic Latin America Fund (SLATX). “We don’t think now is the time to be buying Brazilian equities.
If you bought at the end of 2011, you got the timing right. Now is not the time.” Skaliks says he prefers dollar denominated Brazilian corporate debt.
Lower expectations is also somewhat of a surprise considering interest rates are on the decline. Brazil’s benchmark interest rate is 10.5% and will likely fall to single digits this year.
One risk to the economy is the possibility that the Central Bank mistimed its rate cut, even as inflation remains at the high end of its tolerance band, around 5.5% currently.
Should the global economy pick up more than everyone is forecasting, then Brazil risks having to raise rates again by the end of 2012. Those start-and-stop cycles could pose a risk to the Brazilian economy, though it is unlikely they would pose too big a risk.
If the global economy did improve, and no one is forecasting this, then China, the U.S. and Europe would have more demand for Brazilian goods. That would likely lead to more foreign investment into Brazil, both from corporate interests and portfolio investors.
“This year is looking like a crunch year for the euro zone, so we would assume that 2013 would be an improvement. But hold on a second. China is slowing and everyone expects the economy to be slower there next year.
This could all keep Brazil growth in check, though I think the economy will definitely do better next year than it does in 2012,” says Robert Wood, Senior Latin America Economist for The Economist Intelligence Unit in New York.
forbes.com
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