Brazilian Economic Outlook 2012 – Positive Signs of the Year

Brazil has experienced many ups and downs in 2011. The value of its stock market Bovespa fell by 29% from late 2010 to early August and then rose 20% from October to November. The inflation rate reached the government ceiling of 6.5%; true, climbed to 1.53 per dollar and then dropped to a 2-year low 1.90; and GDP, while the strong is most of the time revised by economists. In November, data released by the Central Bank of Brazil showed that economic growth was still slowing, with GDP growth forecast of 3.2% in 2011, 3.5% in 2012 and 7.5% in 2010. As the economic crisis in Europe and Europe, the US economy stagnated in 2011, Brazil is very much feel the biggest trading partners have been caught in the cold impact.

However, in 2012, we view the outlook for the Brazilian economy to be very positive. Due to the economic slowdown in developed countries, the Brazilian government has taken a very positive approach to help support the domestic economy. As we saw in the second half of 2011, the government is very quick to lower interest rates (even in high inflation) and implement new tax cuts to help raise and protect local businesses. As governments tend to cut interest rates further to help economic growth and inflation appear to fall, we should see more positive signs coming from the Brazilian economy as lower interest rates ease consumer and business pressures

] In 2012, there will still be persistent fears of inflation. Even if inflationary expectations fall, Brazil's use of lower interest rates to stimulate the economy's economy's inability to adequately meet its own domestic needs could lead to the recurrence of unnecessary inflationary growth. Demand pressures could hamper Brazil's efforts to contain inflation due to low employment, robust credit growth, supply constraints and large infrastructure bottlenecks.

The asset bubble is another worry for Brazil's booming economy. With plenty of cash flowing into their way into the country, the rich cash helps fund more of the bank loans and fuel potential real estate bubbles. In Sao Paulo alone, the prices of newly built apartments rose 31 percent last year, and prices in some of the more luxurious communities experienced an increase in value of more than 50 percent. While household debt and debt-servicing costs are still relatively safe relative to income growth, Brazil is characterized by a very short-term nature of consumer debt and a very high interest rate, meaning consumers can only afford so much debt. Compared with most developed countries, mortgages, while becoming more popular, are still at a low level.

As Brazil's growth and demand grow, more investment will certainly need to keep up. With the FIFA World Cup only two and a half years, the Olympic Games 5 years and a huge oil reserves, has not yet been taped a major investment will continue in the field of infrastructure, telecommunications and energy, leading to years of sustained growth