Brazil/Emerging Markets Lead Global Growth Resurgence

The Brazilian economy demonstrated excellent growth in the last quarter of 2011. Domestic spending is increasing due to lower interest rates and government stimulus measures, including tax cuts. In order to positively impact economic growth in check, the Brazilian Central Bank will likely cut interest rates in the next couple months from the current 10.5% to 9.5%, where forecasts indicate they will likely remain for the rest of the year. With President Dilma Rousseff also planning to push ahead with more fiscal stimulus measures, this presents inflationary risks for 2012. Estimates from a variety of sources indicate that inflation should come in around 5.5% for 2012 and remain equal or trend slightly upwards in 2013.

The forecast for Brazil is GDP growth of 3.1% in 2012, with great prospects for an increase in 2013 to 4.3%. Underlying this acceleration are factors related to a 15% minimum wage increase last month (Jan 2012). The labor market in Brazil remains very vibrant as there continues to be increasing public and private investments ahead of the 2014 World Cup and the 2016 Summer Olympics. Due to potential repercussions from a global slowdown, especially with respect to the slowing economy in China, combined with impacts from the challenges being faced in Europe, there is a chance that these forecasts may have some downside risk. These potential negative effects could be mitigated by the policy measures being put in place by the Brazilian government. Additionally, concerted action by the European Union to resolve their sovereign and financial crisis would help to minimize knock-on effects in Brazil and other emerging economies.

It is likely that Brazil and other emerging economies will help lead a global rebound starting in the second half of 2012. As this rolls out, these emerging markets will accelerate their growth-supportive activities paving the way for the growth rate differential to return to their historical differential of around 4% relative to those of the G7 countries, whose growth is forecast to be 1.7% through 2012 – 2013 at best.

US companies seeking to offset reduced demand in the their traditional markets in the US and Europe, if they are currently exporting, need to expand their worldview and increase exports to new markets in nontraditional areas. US Commerce department statistics indicate that less than 1% of all US companies actively engage in exports to more than one country. The most successful US companies will develop a long-term strategy to consistently increase their global market presence.

Posted in Global Partners

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