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Market Analysts Up Their Bets for Brazilian Economy

Garoto chocolate factory in Brazil

Garoto chocolate factory in Brazil Specialists in Brazil's financial market have started believing in better results in the economy and have made some corrections to their previous forecasts. According to the Focus Bulletin, disclosed today, May 28, by the Brazilian Central Bank (BC), the average expectation of hundreds of market analysts heard last Friday, May 25, is that Brazilian industrial production should grow 4.19% this year, and not 4.07% as forecasted in the previous week.

They also corrected their forecasts for Gross Domestic Product (GDP) growth, which is the total of production in the country, and estimated that it will grow 4.16% in the year, against a forecast of 4.10% in the previous research.

The expectation of analysts was also revised up with regard to the trade balance surplus. The forecast last week had been for a trade balance surplus of US$ 41.10 billion in the year, and was altered up to US$ 42 billion.

The BC study maintained its expectations of US$ 20 billion in foreign direct investment (FDI) in the productive sector. The analysts also forecast that the benchmark interest rate (Selic), currently at 12.50% a year, will drop to 12% at the next Monetary Policy Committee (Copom) meeting, to take place next week (June 5 and 6), and may reach 10.75% this year, dropping to 10% next year.

On February 28 it was announced that the Brazilian foreign trade reserves had exceeded the US$ 100 billion barrier for the first time in history. The news was given by the Brazilian Central Bank (BC), which disclosed that foreign currency reserves – a kind of savings account that the country has for possible economic shocks – reached US$ 100.3 billion.

Finance minister Guido Mantega commemorated the fact stating that it "makes the country more resistant to the foreign turbulence that occasionally materializes." And the minister recalled that the financial market is nowadays "powerful and boosted", and that Brazil has large reserves to be able to face the situation if there is a large outflow of investment. "With the reserves, we will be vaccinated against international turbulence," he guaranteed.

International reserves are composed of dollars entering the country due to exports and to financial investment and also due to purchases of the dollars made by the BC. To purchase the dollars, the BC sells treasury bonds corrected by the Brazilian benchmark interest rate, the Selic, currently at 13%.

When the organization invests the dollars abroad, the remuneration is approximately 5%. The cost to the country of the purchase in dollars is 8%, and therefore analysts criticize the reserve replenishing policy that the BC put in place in 2004.

Mantega stated that it is due to the security that Brazil is immune to turbulence that countries now loan money to the country at lower interest rates. "The security we currently have that turbulence does not affect us is worth gold."

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  • Show Comments (5)

  • AES

    ch.c
    Nevertheless, the volume of investment in Brazil had a 24% increase, standing at US$ 18.8 billion.

  • AES

    Ch.c: There is a time to buy and a time to sell and you do not seem to know either.
    Todays Gold Price
    $20.88 a gram at $650 gold costs $R40.716 for a gram of gold at $R1.95
    $20.88 a gram at $650 gold costs $R62.64 for a gram of gold at $R3.00
    If someone exports something for $R40.716 they receive a gram of gold.
    Three years ago they would have had to sell $R62.64 a gram of gold.
    Vis a vis gold the value of the Real has increased 30%. Gold in terms of the Real is nearly a third cheaper.

    Spreads on its sovereign bonds over comparable US Treasury bonds have fallen from more than 22 percentage points in late 2002 to less than 1.5 points yesterday.

    [url]http://www.ft.com/cms/s/d8ccdc6a-0413-11dc-a931-000b5df10621.html[/url]

    Bovespa closed at 52,450 after a brief ride on the Chinese market fall.

    Brazil’s economic strength exists outside of the economies of others and certainly outside of your opinion.

    It is based upon the opinion of the most respected names in investment banking. Standard and Poors, Fitch, Moodys.

  • AES

    GTY: It is already considered investment grade
    http://www.ft.com/cms/s/d8ccdc6a-0413-11dc-a931-000b5df10621.html

    By some measures Brazil is already an investment grade economy. Standard & Poor’s yesterday raised its local currency sovereign rating by two notches to investment grade, although the foreign currency rating matters more to analysts and investors.

    Fitch’s “country ceiling” – the general upper limit on ratings for non-government issuers – is also at investment grade.

    Several private issuers, mostly big industrial groups and banks, already have investment grade ratings, some even higher than Fitch’s country ceiling. There is little mystery about what has driven the recent upgrades.

    Brazil’s macroeconomic “fundamentals” – its trade balance and balance of payments, inflation, the profile of public debt – have all improved steadily in recent years. This year alone Brazil has accumulated more than $35bn in foreign reserves bringing the total to more than $120b

  • João da Silva

    To:Ch.c
    [quote]You see AES, that I am not that wrong, once more, to call you ABSOLUTE idiot, dumb and ignorant…. !!!! .Are you Lula’s son ????? Ohhh then quite normal, you inherited your father’s brains genes !!!!!!
    [/quote]

    You are one of the strangest dudes I have ever come across with.You get too personal to impose your views on others.You must get some professional help to treat your deficiencies. Has it ever occured to you that your ranting and raving can get into others nerves?. You just insult others just to get their attention.What others tell you goes into one ear and comes out of the other,without your stupid brain having enough time to process. Someone should have clipped your wings a long time ago.

  • Ch.c.

    The cost to the country of the purchase in dollars is 8% ??????
    Wher did you read that……idiot ?
    20 years bonds issued by the Brazilian Government are priced at……5.99 % !!!!!
    The Brazilian spread to US Treasuries is around 110-120 basis points, not 300 as you pretend.
    And this spread is for 20 years bonds, meaning a lower spread the lower the years you have to maturity !
    Such as 63 basis points for 5 years bonds !!!!!

    You see AES, that I am not that wrong, once more, to call you ABSOLUTE idiot, dumb and ignorant…. !!!!

    You are really the worst of the worst !!!!!! Are you not the only guy on this planet who pretend that :
    – you sold gold at US$ 830.-…….?????? A price never ever reached in the last 25 years ! Sorry for you junkie !
    – that due to the strength of the Real currency, Brazilians get 1,3 Real for every 1 Real…they export ???????

    Are you Lula’s son ????? Ohhh then quite normal, you inherited your father’s brains genes !!!!!!

    In my view all your investments are with virtual money only : IN YOUR IMAGINATION !!!!!!
    Why dont you go back either to a basic economic course…or play with your XBox game ??????

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