Brazil economic outlook for 2015

iStock 000008768804 ExtraSmallWith an economy in nearly slow motion despite all its business potential, Brazil’s current situation is worrying the population and foreign investors. Here is an economic outlook of what the newly re-elected President Dilma will be facing in her new mandate starting in January.

This year is closing on a mix feeling for the Brazilian economy. The BRICS nations have indeed experienced a fall of its GDP due to shy growth, a high inflation and a poor global context. The World Cup, which brought joy and pride to Brazilians on an international scale, has not had the economic results that were expected.

In October, Dilma Roussef has been re-elected as President (51.64%) against the social democrat Aécio Neves (48.36%). This was the most disputed elections ever and with 21.10% of abstention, voters showed they were not happy with political leaders overall. Even though she said, in her victory speech, that Brazil is not divided, President Dilma faces some significant challenges ahead as the population expects her to tackle the economy, not only social programmes.

Dilma’s first move to reassure investors was to appoint two economists, Joaquim Levy and Nelson Barbosa, as new Finance and Planning Ministers while Alexandre Tombini remains at the Brazilian Central Bank. Yet, experts say that more will be needed to get back investors’ trust.

The new Government’s agenda will certainly have to focus on macroeconomics, i.e. to bring back the country's productivity. This entails several factors such as investment, education, tax reform and infrastructure. Efforts will also have to be made on markets which can expand consumption and generate growth such as housing market, payroll loans, and capital market. The government will have to finish with the so called “Brazil Cost” and protectionist policies that undermine the competitiveness of the national economy and foreign trade.  And the National Development Bank BNDES will have to move toward financing companies and projects that have difficulties to raise funds instead of focusing on already established firms that can be independent.

Needless to say that this will take some time to come into effect and see the actual impact in the Brazilian economy. Dilma’s new government can however make noticeable changes as early as 2015. It will most certainly close the expenditure tap during the first months of the year in order to return to a certain economic balance. While the tax policy will be a big challenge for the government, the monetary policy should try to keep inflation stable. Another important expected factor for 2015 is to encourage the industry and boost entrepreneurship by easing the bureaucracy.

Despite this rather grey portrait, economists have greater expectations for 2015 than for this year as they predict that the first few months should be slow but that economy should resume in the second semester. Foreign companies and investors should be aware that business opportunities are still out there to be grasped, particularly in certain sectors such as infrastructure; IT and energy. Likewise for those interested in Sport and Major Events. Indeed, 2015 is already seen as the starting block and runners must be on their mark to grab their piece of the 2016 Olympic Games.

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