Source: BMI determining whether Brazil joins the group of Latin America s more investment-friendly economies, such as Mexico, Colombia, Chile and Peru, or remains at risk of losing its status as a major investment destination in the region. Below we outline some of Brazil s greatest economic challenges. ...In addition, significant red tape and an onerous tax burden have hurt investment. While the Rousseff government has made piecemeal attempts to address some of these issues in order to bol- ster investment, including streamlining the procedures for opening and closing a business, we believe that without more significant reforms, the country will sorely lag behind its regional peers, act- ing as a major disincentive to foreign investment. Indeed, given few prospects for structural reforms in Brazil, we have long held that the exchange rate is the path of least resistance to rebalance the economy over a multi-quarter time horizon, underpinning our negative outlook on the real (see Commodity Currencies Likely ...While the Rousseff government has made piecemeal attempts to address some of these issues in order to bol- ster investment, including streamlining the procedures for opening and closing a business, we believe that without more significant reforms, the country will sorely lag behind its regional peers, act- ing as a major disincentive to foreign investment. Indeed, given few prospects for structural reforms in Brazil, we have long held that the exchange rate is the path of least resistance to rebalance the economy over a multi-quarter time horizon, underpinning our negative outlook on the real (see Commodity Currencies Likely
...We have downgraded our ---- real GDP growth forecast from -.- to -.- , as the potential for a more significant increase in interest rates than we initially anticipated, as well as persistent currency weakness will temper real private consumption growth this year. A continuation of the Banco Central do Brasil s aggressive monetary tightening cycle saw us upgrade our short-term Selic rate target to --.-- , implying -- basis points of hikes from the current level. ...Key risks to outlook Downside risks to Growth Forecast: A continuation of the central bank s aggressive tightening cycle could further dampen real private consumption growth in the coming months, posing downside risks to our already-tepid real GDP growth forecast of -.- for ----. upside risks to interest rate Forecast: Given drought conditions in several regions of Brazil, a more significant impact on domestic food production than we currently expect, or a government policy change to allow electricity distributors to pass along the costs of rising electricity costs to consumers, could see headline inflation spike in the coming months. Such a scenario would pose upside risks to our ---- interest rate outlook. ...Such a scenario would pose downside risks to our average and end-year exchange rate forecasts for ---- and ----. - Business Monitor International Ltd www executive summary
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