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Infrastructure projects to spur medium-term growth

Brazil’s economy contracted in Q3 for the first time since 2009, with GDP falling by 0.5% on the quarter. But the economy is expected to have picked up in Q4, with the economic activity index rising for the first time in three months in October. Therefore, we forecast GDP growth of 2.2% in 2013 and 1.7% in 2014.

Apart from a weaker outlook for growth, not much has changed from the previous edition. Inflation remains in the upper region of the target range, despite the Government’s attempts to keep controlled prices at bay. And the central bank continues to tighten monetary policy. We expect the Selic rate to end the year at 10.25%, up from 7.25% at the start of 2013. This should help to keep inflation at around 6% this year.

Looking further ahead, improvements in the business environment and infrastructure could help to lift growth to over 3% in the medium term. Last year, Brazil privatized a number of its major airports, successfully auctioned an important pre-salt oil field and improved regulation over the construction of private ports. These measures should allow significant investments to take place over the next few years and help to attract foreign direct investment. They could also help to raise productivity growth. As a result, medium-term growth rates could be boosted further.

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