Brazil: is decoupling possible?

In the early days of the 2008 crisis, the idea of decoupling between emerging markets and the developed world was in vogue. It turned out to be no more than wishful thinking.

The collapse of Lehman Brothers precipitated a downturn that hit emerging markets harder than the developed world and the idea was forgotten in the stampede for the exit doors. The Bovespa index halved and Brazil went into recession, albeit one that proved short-lived.

Could it be different this time round?

The decoupling argument today is certainly back in vogue. But at first blush, it seems counter-intuitive. Brazil has not been immune from evens in the US and Europe. There are clear signs of deceleration in the economy with announcements of drops in investments and household consumption. The Bovespa has performed poorly.

But things are not nearly as critical for Brazil as they were in 2008. Although GDP is slowing, it will be positive at 3% or more this year. Crucially, the increase in trade between developing countries and the importance of China has changed the game. Brazil exported just over $5bn to China in 2005 compared to just $30 billion last year. That means China and Asia will play a far more important role in deciding Brazil’s future. The government is pushing interest rate cuts, for which there is plenty of scope. Meanwhile, the Brazilian banking system has not slashed credit as it did in 2008.

These dynamics could be thrown off course if the European banking system goes into meltdown. But there’s increasing confidence among businessmen that by embracing Asia and loosening monetary policy escape the worst of the effects stemming from the developed world.

Decoupling is an idea that has come of age.

About admin

I've been researching and writing on Brazilian financial markets, industry and economy since 2006 for a wide range of specialist media, consultancies and investors. Before that I spent over 10 years in London and New York writing for and editing magazines and journals dedicated to finance, investment and economics in developing markets, mostly for the Euromoney Institutional Investor group and Thomson Financial. Areas of coverage Below are samples of areas that I cover and some of the common themes that I investigate. Capital markets BM&FBovespa markets *capital raising trends: via equities (IPOs and secondary issuance), debt and loans *the asset management industry: legislation and coverage of the key hedge, pension and investment funds * corporate governance: how the regulator is seeking to strengthen best practice and limitations * debt markets: the nascent corporate markets, attempts to boost liquidity and new insturments. * private equity market: why this market has been so successful, who’s involved. *electronic, high frequency trading and alternative trading platforms: what does the future hold? Banking *credit: the growth of consumer and business credit and competition between banks and models *Public versus private: the role and market share of public and private sector banks and the politicization of the industry * internationalization: which Brazilian banks are expanding overseas and where * investment banking: the growth of the domestic market and who’s winning which mandates *regional banks and development banks: what role they play in the industry and how they compete Mining *licensing: the complex process of obtaining environmental, water, land and operating licenses at a state and federal level. * capacity: the feasibility and sustainability of capacity increases * financing: how miners are raising finance in Brazil and abroad *competition: the interplay Vale, MMX and junior miners *logistics: rail, road and port connections Oil and gas: the fund raising issues related to the massive of pre-salt (link) Multilatinas: Who are they and how and where they are expanding Meatpacking: Are debt burdens sustainable, what are the different business models for areas such as branding and distrbution Agriculture: How are farms consolidating, what are environmental risks, how can foreign investors be involved. IT and software: Can Brazil take on India and build a viable long-term IT industry? For more information on clients and work, please see the media and consultancy sections.
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