The Brazilian economy grew by just 0.9% in 2012, the reason for it being the Brazil’s idiosyncratic and structural factors.The steady rise in the exchange rates and persistent rise in wages in the absence of any reforms resulted in lack of competitiveness in the economy.
Economic Growth Indicators
GDP is expected to reach 3.4% in 2013. The growth outlook for 2013 is expected to remain higher than 2012 due to implementation of new economic policies, lower levels of inventory and a foresight of better world economic situation. The recovery expected in 2013 will help in attaining a growth rate of 3.8% in 2014.
Inflationary pressures will not witness any kind of decline and is expected to converge at the 4.5% ,in near future. The increased inflation has called for tightened monetary policy. The Central Bank of Brazil adjusted the SELIC rate up by 25bps to 7.5%. SELIC is expected to reach to 8.75% this year in August and shall remain constant thereafter. This tightening of monetary policy is expected to remain relatively soft as the motive behind this is not to arrive at a targeted figure for inflation but to ease inflationary pressures.
Fiscal policy presently focuses on improving economic activity Meeting targets and minimizing public debt are now its secondary goals. The scope of the fiscal policy has widened, therefore fiscal targets have been eased permanently.It will increase uncertainty regarding the future fiscal performance and could call for adopting stricter monetary policy.
Exchange Rate: The exchange rate is expected to remain stable within the range of 2.0-2.1 in 2013-2014.
Current Account Deficit(CAD) – CAD is expected to widen due to increased level of inflation, lack of competitiveness, unfavorable terms of trade etc. All these factors will drive CAD to 3.0% in 2013 and 3.3% in 2014.
The dip in exports in Brazil is short lived. The fall in exports in Brazil in the last quarter of 2012 and in the 1st quarter of 2013 would limit its growth to 2% for the complete year of 2013, as against increase of 4% in 2012.Exports should rise to 6% in 2014, on the pretext that sales market will expand and the likelihood that the competitiveness of German enterprises will probably improve. The share of exports to non-Euro-areas should rise.
Debt crisis in the Euro area is expected to show some recovery signs, reforms are being implemented and recession in Euro area is likely to come to an end soon.Under such circumstances confidence of business enterprises would boost. Exceptionally favorable financing conditions can then enable businesses to uplift their investment.
The imports volume increased just marginally in 2012, to a meagre 2.25% which is well below the increase in exports. The reason for this sharp decline in imports can be attributed to significant fall in investments. Importers account for half of the domestic investment in machinery and equipment. But now an expected rise in investment in upcoming years might boost imports.
The negotiated labor rates are likely to grow in the coming year by 2.7%, a rate similar to the year 2012. The wage drift on a monthly basis is likely to show an opposite trend and become negative in 2013 because of falling bonus payments and reduction in working hours.
Debt ratio is expected to fall in the coming two years since the banks are likely to reduce their NPAs and their budget deficits are expected to be relatively small. This is based on the assumption that no further support measures and any kind of aid needs to be provided for German financial institutions or the Euro area.
|Year||GDP % Change||Inflation % Change||Year||GDP % Change||Inflation % Change|
Source: World Bank
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|Last Updated on : 21th February 2015||Next Update : February 2016|