Morgan Stanley: Brazil Is Not Immune to Global Turmoil
posted on: January 30, 2008 | about stocks: BIK / BKF / EEB /
Brazil may be better positioned than ever to withstand global economic turmoil, but it is certainly not immune. That's the message from Morgan Stanley's Marcelo Carvalho, writing in the Global Economic Forum.
Carvalho outlines four main areas where Brazil could find itself affected by a global downturn: balance of payments; monetary policy; a wobbling of Brazil's local financial markets, though "happily, Brazilian banks have no direct exposure to the issues currently afflicting banks in the developed world"; and local sentiment. Of these Carvalho considers the balance of payments the most important:
A global growth slowdown would debilitate Brazil’s export performance (through volumes as well as prices). And strong domestic demand would keep pushing imports up. We see the trade surplus falling by half, from US$40 billion in 2007 to US$20 billion this year. We have strong conviction in this call, and it is not in the price yet.
The consensus for the 2008 trade surplus has fallen for more than eight weeks in a row,to about US$30 billion recently, from some US$35 billion before. We think that there is more to go... Our out-of-consensus call continues to see a current account deficit of 1% of GDP in 2008, a deficit for the first time after five years of surpluses. Likewise, last year’s record-high capital inflows should not repeat. We see capital flows in 2008 slowing to about a third of their 2007 level.
Morgan Stanley noted that while the accelerated growth in 2007 gave Brazil plenty of momentum as 2008 began, there will be some deceleration ahead:
We suspect that year-on-year real GDP growth will have peaked at almost 6% in 3Q07, and we look for a growth deceleration through 2008. We expect average year-on-year real GDP growth of 4.7% in 1H08, slowing to 3.8% in 2H |
