Brazil Business Estimate 2012

Core Views:

Blessed with favourable demographics, a wealth of natural resources and a stable banking sector, Brazil offers some of the majority exciting investment opportunities globally.

Brazil's massive infrastructure deficit and untapped mineral wealth are likely to see strong foreign direct investment flows continue over the next few years, despite the weaker world increase outlook.

However, significant policy concerns remain: we question whether the monetary authorities' increase bias is eroding the central bank's inflation-fighting credentials, and are sceptical whether the government can or will do enough to curb spending over the next several years.

How Brazil reduces the role of the government over in the country's economic development will have major implications for the rate and shape of increase for years approaching.

Major Estimate Changes

We have revised down our interest rate estimate to 11.50% for end- 2011 (from 12.75% before), and 11.50% for end-2012 (from 12.25%) as the central bank appears committed to prompting increase despite high inflation.

We have revised down our 2011 real GDP increase projection to 3.8% (from 4.5% before), although hold to our above-consensus increase rate of 4.8% for 2012, as we believe the authorities increase bias and strong investment should keep economic activity elevated.

Key Risks To Outlook

Downside Risks To Rate Estimate: Although not our core scenario, we see potential for a slowdown in world trade flows to lead to a hard landing in China, which would be bad news for Brazilian increase, and could allow the central bank to cut rates additional aggressively than we currently expect .

Downside Risks To 2012 Increase Outlook: Although we are happy to sit with our above-consensus increase projection for 2012, should world increase slow significantly over the next few months this could lead to us to revise down our real GDP estimate.