The strong recovery continues in Brazil

Brazil´s economy continues to rebound. A recent business climate survey by the Fundación Getulio Vargas and the German ifo Institute shows that Brazils economy is currently booming, with domestic demand showing some positive developments and the real estate sector registering an increase in sales over the course of 2009. Manufacturing is also showing some encouraging signs of recovery: in September, industrial production increased by 0.8% compared to the previous month - marking nine months of consecutive growth. The government has continued with its measures to revive the economy, including a reduction in the tax burden and tax exemptions for industrial products such as flexible fuel vehicles.

While, as in many other countries, the payment behaviour of Brazilian companies has deteriorated over recent months, we now expect an improvement commensurate with the pace of economic recovery and the improvement in companies´ cash flow.

Major investment expected in the coming years

The optimistic outlook of Crédito y Caución for Brazil´s future economic performance is bolstered by two new developments:  the discovery of a huge offshore oil field that may contain between 5 to 8 billion barrels of oil - enough to expand the country's proven reserves by 40-50% - and the fact that Brazil will host the FIFA World Cup in 2014 and the Olympic Games in 2016. This all will lead to a major surge in investment. According to the Brazilian energy company Petrobras, the investments in oil exploitation will exceed US-$ 40,000 million between now and 2013. Costs for the necessary building and upgrading of football stadiums are currently estimated at US-$ 3,280 million, while private and public investments in the Olympic Games will total US-$16,600 million, which will lead naturally to an increasing inflow of foreign capital.

A study by the United Nations Conference on Trade and Development (UNCTAD) has concluded that Brazil will play a pivotal role in the recovery of global flows of foreign direct investment from next year. While the IMF forecasts GDP to grow by 3.5% in 2010, the Brazilian central bank predicts an increase of as much as 5%. The Brazilian Treasury Department expects the central bank´s overnight lending rate SELIC to increase again to 10.35% during next year.