LatAm report 2: Brazil leads for growth and investment

In its latest Vision report, State Street examines the potential presented by five major markets in Latin America. InvestmentEurope will focus on one market each day, with a macro economic round-up, a view of local investment infrastructure, and an opinion from a fund manager focused on the market. Today, Brazil is in the spotlight

Brazil’s national motto “Ordem e Progresso” (Order and Progress) is finally being realized after an economic history that hasn’t always been very orderly. According to State Street’s Vision report entitled “Latin America’s Five Major Economies”, Brazil’s recent economic data indicate improvement, but a bumpy road still lies ahead.

“Economic growth during the final quarter of 2011 was probably slightly better than in the third quarter, and the leading indicators for February are once again pointing to economic expansion,” the report noted. “On the other hand, industrial production in January reflected a surprisingly strong decline, the strongest slump in the last three years.”

Interest rate cuts were expected through the first half of 2012 but the Brazilian central bank intervened on the FX markets after the country registered the strongest monthly capital inflows in its history early in the year, causing the Brazilian Real to appreciate sharply. The finance ministry intervened verbally. The measures were well received as a commitment from the authorities to fight the region’s longtime financial enemy, inflation.

With percentages running into the thousands in the early 1990s, inflation is now about 6%.  In 2011, economic growth was estimated at 3% and unemployment just 5%, with labour shortages in many sectors. In February, Brazilian shares gained an average of 4.3%, leaving the Bovespa Index just 8% short of its record high.

Brazil’s global competitiveness is rising. The country recently overtook the UK as the sixth largest economy in the world. A report from KPMG found London remains the top city globally for foreign investment, leading Shanghai and Hong Kong. But Brazil’s Sao Paulo is already in fourth place, with a160% investment increase over the past two years.

The city is the nation’s most industrialized and most important business centre. It features Brazil’s highest literacy and lowest infant mortality rates, and the highest GDP per capita. 

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