IMF slashes Brazil GDP growth estimate for 2014

There were no surprises at the IMF’s decision to maintain their growth estimate for 2013 at 2.5% today, but the decision to reduce the 2014 estimate from 3.2% to 2.5% took some by surprise.

The countrywide figure of 2.5% masks huge regional variation in Brazil. Agriculture has performed very strongly this year following the reduction in the value of the Real and regions where agriculture is one of the principal economic drivers – such as Goiás – are likely to show stronger growth than 2.5%.

At 2.5%, the growth estimate for 2014 is the lowest among key emerging economies, according to the IMF:

GDP growth estimates by IMF @ 8-Oct-13
Country 2013 2014
Brazil 2.5% 2.5%
India 3.8% 5.1%
China 7.6% 7.3%
Russia 1.5% 3.0%

Brazil 2013 inflation and growth expectations on the rise, but slower growth anticipated for 2014

According to the Banco Central do Brazil’s latest economic forecasts, inflation is expected to be 5.83% in 2013 (market consensus) – average expectations were at 5.75%  a month ago.  A similar level of inflation is expected in 2014.

GDP growth (PIB) is expected to be 2.32% in 2013, up from 2.24% a month ago.

Expectations for economic growth in 2014 are on the decline – the average is currently 2.30% compared to 2.60% a month ago.

Brazil’s economists suprised by strong growth in Q2 2013

Brazil economy growth Q2 2013The 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.

July 2013 protests in Brazil may signal a positive future for the economy and real estate

The protests are believed to have started in Goiânia over a bus fare increase of over 10%, from R$2.70 to R$3.00.  This was the straw that broke the camel’s back:  people have, apparently, been complaining in Brazil for a long time over the state of education, transport, crime, healthcare services and corruption in politics but generally within the four walls of their houses.

When a great deal of people have to travel into Goiânia to work, frequently needing to take two buses to get there, public transport can amount to over R$10 per day.  On the basis of say 22 working days in the month, this cost can equate to a third of the income of someone earning the minimum wage which this year increased by about 9% to R$678, about £205 per month.

When the court ordered the fare increased be reversed, it was by then too late to stop the public from voicing their anger – it had broken free, and spread throughout Brazil.  While there has been some violence which has made the headlines, the vast majority of the protests have been peaceful.  There has been very little violence in Goiânia linked to the protests.

People in Brazil resent the amount of money being spent by politicians in the context of the quality of healthcare education and so on, e.g. the governor of Rio de Janeiro was recently in the news for frequently taking his family, and pets, in a state helicopter to his beach house.  The amount of money he is spending on helicopters has doubled since 2007.

There is speculation that the new football stadia will be white elephants after the the World Cup, and the copa das confederações which Brazil just won:  the new stadium in the capital Brasilia was programmed to cost R$740 millions and ended up costing 40% more.  Brasilia has a relatively small football team which according to Wikipedia until recently played in a stadium with a capacity of 5,000; the new stadium has a capacity of 71,000.

The wave of protests may result in better transport services, better healthcare, better education which are all necessary for sustainable economic growth.  More prudent public expenditure should free up money for private investment which may in turn drive economic growth.  More prudent public spending can be combined with better public services.

The protests may be an early signal of forthcoming economic improvement and a reason therefore to invest in Brazil real estate, not to be scared off by the short term noise.