São Paulo – This has not been an easy year for the Brazilian economy. Although the government and most economists expect Brazil’s Gross Domestic Product (GDP) to be up approximately 2.1% in 2013, double the rate of 2012, as the year ends, a challenging scenario is outlined for 2014. Stubborn inflation, high interest rates, government intervention in the economy and uncertainty regarding the external situation all paint a gloomy picture for economists. On the other hand, agricultural output is set to grow, and the trade balance should close the year on a surplus.
An Economics and Finance professor at Ibmec-RJ, the economist Luis Filipe Rossi says that in 2014, Brazilian growth should not become “unglued” from the international “hangover.” The world is still recovering from the 2008 crisis. Apart from the external scenario, says Rossi, the Brazilian economy should keep suffering with excessive government interference in a year of majority elections. Foreign investors are watching the government’s measures closely.
“I do not see Brazil becoming unglued from the world, even though the World Cup and the Olympics are coming. All the more so because the World Cup is almost in the past; it will take place in 2014 and its effects [on the economy] have probably already been felt. The world is still recovering from the aftermath of the crisis. And Brazil’s economy is undergoing readjustments, government pyrotechnics notwithstanding,” says Rossi. “We see a lot of credit expansion, but the demand just isn’t there, and this picture is not likely to turn around in 2014. All of this is perceived by foreign investors as increased risk,” says the economist.
Rossi notes that Brazil may be harmed, in 2014, by the end of the US government stimulus. The Fed, i.e. the United States Central Bank, injects US$ 85 billion a month in the US economy and keeps the interest rate at 0.25%. Signs of recovery may cause the United States government to cut down on stimuli.
“Should the US dollar supply end, it will affect us. Should the Fed judge stimulus is no longer need, it will certainly raise interest rates, which in turn will cause the Brazilian Central Bank to raise our rates here as well [to enable investors to profit and make Brazil into an attractive target],” he says.
Bilateral trade
According to the chairman of Brazil’s Foreign Trade Association (AEB, in the Portuguese acronym), José Augusto de Castro, the external market outlook for 2014 is one of exports outweighing imports, and the country should have a trade surplus by the end of the year. However, he says, the prices of all commodities, agricultural and mineral, is poised to decline.
“All commodities, with no exception, will sell for less than they are selling this year. It will not be a sharp decline, but prices will be lower. Some commodities have seen record exports this year, like sugar, soy, and ores, and this will not repeat itself,” says Castro. The product that can tip the foreign trade scale to Brazil’s side, said Castro, is the same one that is hampering the export performance in 2013: oil.
“Higher volumes of oil should be exported; at least 50% more than this year is what we expect. In 2014, there will probably not be as many interruptions in [oil rig] operations as this year. If this proves true, output should be up approximately 10%, by roughly 200,000 barrels per day. We need a 50% increase in oil exports to offset a decline in price of approximately 5%.”
Castro also says it is still difficult to give an estimate regarding imports. Still, they should be lower than this year. “The overall import volume should be lower. There should be a 5% decline, due to a stronger exchange rate, among other factors. By the end of the year, we are expecting the country to see a surplus ranging from US$ 5 billion to US$ 8 billion, all the more so if we have new [offshore oil] rigs entering into operation, which should be the case. All of that is not considering an eventual crisis,” he says.
Agribusiness
A Rural Economy professor at the Federal University of Paraná (UFPR), Eugenio Stefanello says that next year, agricultural production should increase in some sectors, and prices may drop. But he warns that the exchange rate at R$ 2.35 for US$ 1 on average toward the end of this year is still less than ideal.
“For the 2013-2014 crop we are looking at 195 million tonnes of grain, being 90 million tonnes of soy and 78 million tonnes of maize, and plantations should be in a regular situation as a result of the United States’ crop recovery, and increased planted area in South America. Soy and maize prices are expected to be slightly down,” he says.
In livestock, says the professor, beef production is expected to be up 4%, poultry should be up from 3% to 4%, and pork should be up from 2% to 3% from 2013. Milk production should amount to 33 billion litres this year, and be up 3% in 2014. The increased supply may cause a slight drop in prices. “Output should not be down, but product prices should be lower. Milk prices will be down slightly and meat prices should either remain level or drop marginally. But that should not detract from farmers’ gains,” he says.
According to Stefanello, however, the exchange rate toward the end of this year, at approximately R$ 2.35 for US$ 1, helps exporters recoup their revenues. However, it is still insufficient when it comes to balancing out the country’s accounts, and should be even higher next year. “We started [the year] at R$ 1.90 for US$ 1, then we hit R$ 2.45 for US$ 1, and by the end of the year it should be around R$ 2.40. In 2014 the rate may be as high as R$ 2.50. Still, it is below the market balance point, because we have a R$ 70 billion current account deficit,” he notes.
*Translated by Gabriel Pomerancblum
