Brazilian Real Executive Summary (BRL)

Country Overview

Foreign Exchange

The Banco Central Do Brasil is responsible for the foreign currency exchange reserves and administration for the Federative Republic of Brazil, as well as administering the Selic benchmark interest rate. As of September 2015, the Central Bank had avoided dipping into foreign currency reserves despite the plummeting value of the BRL.

Credit Rating

Brazil’s recent economic woes have brought them under scrutiny from the three largest ratings entities. All three rating entities downgraded the rating of the country within recent months. Currently, S&P credit rating for Brazil stands at BB+. Moody's rating for Brazil sovereign debt is Baa3, down from Baa2. Fitch's credit rating for Brazil is currently listed as BBB.

Inflation Rate

Inflation in Brazil soared nearly 11%, reflective of the larger economic problems, the Zika outbreak crisis, and recent bureaucratic scandals in the Brazilian economy. Analysts expect this trend to continue over the next quarters, despite the current economic decline. This is in part due to the lack of movement in the benchmark interest rate set by the Central Bank.

Growth Outlook

Amid the economic turmoil in Latin America’s largest economy, analysts expect a contraction of the nation’s GDP 3.4% in 2016, down from an estimate of 3.3% just a few weeks earlier. This comes after a contraction of 1.7% in the final quarter of 2015. According to reports, gains in the GDP may not begin to reappear until 2017.

GDP Annual Growth Rate for Russian Federation averaged 3.23% in the decade between 1996 and 2005 as reported by the Federal State Statistics Service. The Russian economy contracted at 4.1% in the third quarter of 2015, a number consistent with analyst estimates. This steep contraction comes as a result of lowering crude oil prices, a significant obstacle to growth in one of the world’s largest oil-producing countries. Domestic consumption declined considerably, resulting in depreciation, and marked increases in inflation.

Government and Trade

Problems such as declining commodities prices, corruption, and problems with infrastructure in the large nation are hampering what should be a bright economic outlook; the country has many qualities that make it attractive to foreign investment – increases in the skilled workforce, increasing technological, manufacturing and export prospects, and increasing domestic demand.

Most recently, the burgeoning threat of the Zika virus in the nation has presented both a major domestic health crisis and a trade and tourism disaster. More than 4,000 babies have suffered catastrophic microcephaly (underdevelopment of the braincase and grey matter), prompting the CDC to issue a rare travel warning for those traveling to the region – specifically pregnant women. Health officials in Latin America are urging women to delay pregnancy until the crisis is brought under control.

The Zika crisis comes at a time when Brazil should be celebrating the economic boon of hosting the Summer Olympic Games; however, the influx of over 10,000 athletes and an ever larger number of spectators could not come at a worse time in light of this devastating public health emergency. The total economic impact of the Zika crisis remains to be seen.

http://www.tradingeconomics.com/brazil/inflation-cpi/forecast
http://www.bbc.com/news/world-latin-america-35368401
http://www.reuters.com/article/us-brazil-ratings-s-p-idUSKCN0RA06120150910
http://www.nasdaq.com/article/economists-raise-slightly-brazil-inflation-outlook-for-2016-cut-gdp-view--survey-20160222-00300
http://www.reuters.com/article/us-brazil-real-intervention-idUSKCN0RP2DA20150925