FSG View: Stimulus efforts are beginning to take effect, but Brazil is not out of the woods yet as industrial output continues to stall
Market Trends
The two-speed economy continues to develop in Brazil with unemployment sinking to a record-low 4.7% in December. Tight labor markets and real wage hikes are helping to fuel consumer spending while industrial output and manufacturing continue to lag.
Current stimulus measures, coupled with an increase in public spending and lending by the BNDES, should keep the Brazilian economy out of recession in 2012, but will likely be less effective than in 2009 as consumer expectations and business confidence are not as anchored as they were during the previous crisis.
Key Developments
Government efforts to jumpstart the economy by loosening consumer credit are bearing fruit as recent data released by the central bank show that seasonally adjusted economic activity rose 1.15 percent in November from October. Retail sales rose 1.3% over the same period, the fastest pace in 15 months.
Labor costs are expected to rise even further as the government enacts new regulations requiring companies to pay overtime rates for after-hours work calls or emails. While this measure is unlikely to affect compensation for senior managers, FSG expects companies to see an uptick in overtime pay at the analyst and junior management level.
The government announced that the manufacturers of certain tablet computers will qualify for a series of tax incentives, clearing the way for Foxconn to begin producing Apple iPads in Brazil.
The fact that Foxconn required preferential tax treatment to make iPad production profitable is illustrative of the type of cost challenges faced by multinationals looking to produce in Brazil.
Looking Ahead
FSG will be monitoring consumer prices in Brazil to see if the central bank can manage to bring inflation down while continuing to aggressively slash interest rates
No related posts.
