Brazil 2010
Many world economies will be glad to see the back of 2009, however Brazil has managed to weather the global storm “virtually unscathed” according to the Wall Street Journal this week.
Although it will post only modest GDP growth for the year, it still managed to create over 1.2 million new jobs (932,600 in the first 3 quarters), it increased the value of its currency by 33%, and posted an incredible 77% gain in the BOVESPA (stock market). By the third quarter of 2009 it had expanded its GDP by 1.3% over the previous quarter. If indeed Brazil did suffer a recession (at least by the technical definition), then it had come in and out of it in approximately 7 months, and had recovered sufficiently to still record an annual GDP growth in 2009 (one of only 4 countries in the world).
I’m not an economist; however it intrigues me that countries such as Brazil appear to be a lot shrewder in preparing for and managing a global downturn than much of the western world. I assume that’s the reason that Goldman Sachs predicted that Brazil will be one of the 4 financial powerhouses of the future.
During 2009 family consumption rose 2% (on calls from the president to keep spending), and inflation remained stable at around 4.3%. Brazil has just 100 Billion of public borrowing (6% of GDP). Compare that to UK and USA (60%). In addition, it holds 240 Billion Dollars of foreign reserves, and when the rest of the world seemed to run out of money (and turned on the printing presses), Brazil retained liquidity.
Not too many years ago, Brazil was negotiating terms with the IMF to borrow money, today it’s lending it money. Back then, Brazil imported 70% of its oil, today (actually from 2006) Brazil is completely self-sufficient in energy and is a net exporter. It’s also the largest producer of hydro-electric power, which actually provides over 80% of the county’s electricity.
For next year, conservative estimates put GDP growth rates in Brazil at between 5.2% and 6.1%. Interest rates are at an all time low (8.75%), and inflation between 4% and 5%. A slightly different profile to the “Emerged Economies” — countries who decided to borrow their way into a global recession, and then attempted to borrow their way out of it, who shed millions of jobs, then devalued their currencies, and tanked their stock markets. Perhaps many of us should consider looking at the so-called “Emerging” economies as the leaders of fiscal policies rather than the followers. I know who my money is on over the next 5 years.
When you combine the underlying strength of the economy with the momentum and growth within the property market, and of course the “World Cup” effect on Fortaleza, you will appreciate why we believe it offers the best investment opportunity in the world today.
Over 51% of the Brazilian population is now officially categorized as middle-class (projected to be 59% by the end of 2010), and this has created a massive housing shortage in Brazil. In Ceara in the North-East, revised estimates show that there is a current shortage of between 200,000 and 300,000 homes (some reports claim many more). This is the same area where our Caponga Beach development is located.
Another reason that Brazil suffered less from the financial crisis is that only 3.2% of residential housing has a registered mortgage. This has also had the effect of keeping property prices low. The financial and banking sectors are now heavily marketing home loans in Brazil, and just about every major international bank is now poised on each street corner in the centre of Fortaleza.
Incredibly, the biggest IPO of 2009 was Santander’s raising of 8 billion dollars through Banco Santander Brazil. A pretty solid indicator of the banking sectors intentions for the coming years.