The Brazilian economy as a whole (PIB) increased by 2.8% over the year to the end of Q2 2013. In the second quarter of this year alone, the growth was 1.5% which surprised economists who were expecting more like 1%. This combined figure masks the disparity between the different sectors of “the economy of Brazil”; the components are: agriculture 3.9%; industry 2.0% and services 0.8%.
The weakening of the Real, combined with an undiminished world appetite for food, has proven a real boon for the agricultural sector. When the data comes out for the different regions of Brazil it is likely that the economy of the state of Goiás, and others where agriculture is a principal economic driver, will show stronger than average growth.
While the economy as a whole has grown, household consumption is reported to be weak and this has led to increased stock levels.
The expectation for Q3 2013 is for much weaker growth, of c. 0.5%, and the expectation for 2013 as a whole is for around 2.5% growth but that is looking conservative.
From an internal perspective, the fall in the value of the Real may be down to two things:
1. Less than exciting growth prospects combined with rising inflation
In January 2013, the government’s prediction for PIB (broadly equivalent to GDP) growth was 4% for 2013. It was revised down to 2.2% recently. At the same time, inflation is predicted to be around 5% in 2013. This equates to negative real growth i.e. in terms of purchasing power, people in Brazil with Brazilian Reals will be able, on average, to buy fewer goods with their money at the end of the year than they were able to at the beginning of the year.
2. The protests
These have quietened down considerably since July, but they may have (in my view wrongly) rattled the confidence of some leading to the outflow of international money.
The value of a currency is of course the result of an equation, and UK economy is now clearly recovering, which has lead to the British Pound being more attractive to international investors – this outside influence on the value of the Real is something that news reports in Brazil rarely consider.
So what does the future hold?
In terms of the outlook, interest rates may rise further (the key Selic rate rose was increased from 8.5% to 9% yesterday) with a view to curbing inflationary pressures which in turn may see the Real strengthening again.
The lower value of the Real should provide a huge boost to Brazil’s export market, as produce will appear to be cheaper to international buyers. This should see regions where a significant part of economic output is based on agriculture (like Goias) growing more strongly than city regions like Sao Paolo.
While there has been asset inflation since 2011, assets in Brazil, especially real estate, may now represent good value for money for British investors.
For two hours yesterday, 16 million people were without electricity in northeastern Brazil.
The cause was put down to fires in the state ofPiauí which saw the power level in the north-east drop from 10,000 mW to 1,000 mW.
This power outage highlighted the weaknesses in the infrastructure in some areas: some hospitals were left without power because they do not have emergency generators, causing nurses to have to operate manual ventilating machines for patients who are unable to breath unaided.