The Brazilian Embassy in Canberra is launching its monthly Newsletter dedicated to promoting a greater knowledge of Brazil and Australia relations and the Brazilian economy, for the benefit of the Australian public, businesses and academic communities as well as for Brazilians in Australia.
The idea is to provide updated information and statistics on the Brazilian economy, its evolution and prospects in order to assist the international trade business community.
The Australia-Brazil Business Council (AUBRBC) has the pleasure to assist the Brazilian Embassy in Canberra in divulging such an important publication, to be written monthly by our Honorable Ambassador Sérgio Eduardo Moreira Lima, Canberra.
Brazil and Australia are the two giant territories in the Southern Hemisphere.
They also represent, as members of the G-20, the 8th and 14th largest economies in the world. As great exporters of commodities, they have a responsibility of meeting the demand on minerals for energy and the new industries, as well as of agricultural products necessary to ensure global food security, while contributing to sustainable development.
They share important political interests as well as fundamental values as great representative democracies, one in Latin America and the other in the Asia-Pacific, regions with great dynamism and potential.
The two countries have also in common another outstanding feature in their social evolution: multiculturalism.
Brazil has been a melting pot of races and ethnic groups from all over the world. In more recent decades, Australia is evolving the same way.
Furthermore, both countries have made a remarkable contribution to multilateralism and diplomacy. Despite their different legal traditions, one from the common law and the other from civil law systems, they have played a positive and historic role in the progressive development of international public law by contributing to a rules-based international order.
Australia and Brazil: A Strategic Partnership
This year represents a historical moment for Brazil and Australia in its Strategic Partnership. We are celebrating 75 years of the diplomatic relationship between the two countries, established in 1945. They both fought in the two world wars and are founding members of the United Nations.
In fact, their remote links date further back to the exploratory expeditions to the Southern Seas in the eighteenth and early nineteenth centuries, when Rio de Janeiro was a necessary stop for English ships and their crew to rest and prepare for the continuation of a long journey. Because of those stops, trade between the two colonies began.
The Brazilian national spirits “cachaça”, distilled from sugar cane, inaugurated those exchanges together with botanical species, such as coffee, fig, indigo, cassava and jacaranda, on the Brazilian side, and eucalyptus and other native plants from Australia.
According to the records, “cachaça” was the drink used in early times by the English to toast some memorable occasions in those expeditions, such as the arrival of the First Fleet.
If in 1788, Captain Arthur Phillip could bring Brazilian products to Australia, initiating a flourishing exchange, the time has now come to negotiate a broad agreement to promote free trade and investment for the benefit of both countries and their regions at a time of cooperation in the face of global challenges and technological opportunities.
With the eighth largest economy in the world and the leading one in Latin America, Brazil is finally recovering from two years of recession.
The pension reform in 2019 illustrates the structural changes for establishing the necessary conditions for sustainable growth. The government raised its GDP outlook for next year and lowered its forecasts for inflation and interest rates.
It expects the economy to grow 1.2% in 2019, 2.3% in 2020 and 2.6% in 2021. Inflation will close 2019 just under 3.5% and interest rate at a record low of 4.5% and Brazil-risk significantly reduced (117-point, a figure last registered in 2013).
Unemployment keeps falling (11.6% third quarter), while manufacturing, agriculture and services are expanding with consumption and investment picking up.
In fact, investors are seeing increasing opportunities in emerging markets, especially in Brazil, where the assets are still undervalued as a consequence of recession. Historically, the Brazil Stock Market (BOVESPA) reached an all-time high in December of 2019.
Brazil’s energy policies measure up well against the world’s most urgent energy and environmental challenges. Access to electricity across the country is almost universal and renewables meet almost 45% of primary energy demand, making Brazil’s energy sector one of the least carbon-intensive in the world.
At the same time, as a consequence of technological expertise, Brazil has become the 8th largest oil producer, as well as the 2nd largest ethanol producer in the world, responsible for a gasohol which represents a contribution to decrease carbon emissions and increase employment in rural areas.
With 14.5 GW, Brazil has the largest wind capacity in Latin America and the 8th in the world.
Wind power increased by 9 per cent in 2019, making it the fourth in Brazil’s total energy mix, forming about 8 per cent of its 162.5 GW energy capacity. Solar power is also expected to increase significantly in relation to 2018 figures, placing Brazil closer to the top 10 world producers.
Brazil’s economic recovery
Gross domestic product figures show Brazil’s economy grew at a faster pace than expected in the third quarter of 2019 and is gaining steam. Data for September 2019 indicate a positive end to the third quarter (Q3) for the domestic economy, with economic activity and retail sales recovering.
Incoming data for Q4 points to broadly sustained momentum, with the growth of manufacturing for the third consecutive month in October and business confidence increasing in November. Analysts project growth of 2.3% in 2020 and 2.6% in 2021 amidst prospects of a more positive outlook. Maintaining sustainable growth will require strengthening productivity, including closer integration into the global market.
S&P raises Brazil’s outlook to positive
Standard and Poor’s Global Ratings affirmed the “BB-” Foreign Currency LT credit rating of Brazil on December 11, 2019. At the same time the rating agency revised outlook from stable to positive. It justified the decision on the basis of the Brazilian government’s consistency in promoting growth and reducing its fiscal deficit, among other reasons. According to the statement: “The approval of social security reform and expected progress on fiscal and growth measures, along with moderate growth driven by stronger domestic demand, could improve Brazil’s fiscal position over the medium term”.
EMBI + Brazil
In 2019, interest rates and spreads narrowed in relation to Brazil as a consequence of the approval of the pension reform. That positive outcome influenced the emerging markets bond index, which measures the total return performance of international government bonds issued by emerging market countries.
Brazil cuts interest rates to 4.5%
Better economic outlook encouraged policymakers to cut interest rates for the fourth time. On the 11th December, Brazil’s central bank cut its benchmark interest rate for a fourth consecutive time. The move coincided with the recovery of the Brazilian real, which had plunged to record lows against the US dollar as a consequence of declining interest rates. The Real is expected to averaged R$ 4 to 1 US$ in 2020.
Unemployment keeps falling
The unemployment rate in Brazil fell to 11.8 percent in the three months to July 2019 from 12.5 percent in the February to April period, below market consensus of 11.9 percent. The number of unemployed declined by 4.6 percent while employment rose by 1.3 percent in November 29, 2019. Brazilian authorities expect the reduction to continue to a single digit unemployment rate by 2022.
Solid recovery in Brazil’s service sector
Service sector activities in Brazil expanded in October far more than economists expected, figures indicate that overall growth in Latin America’s largest economy continued to accelerate in the fourth quarter. According to IBGE, Brazil Statistics Agency, service sector activity rose a seasonally adjusted 0.8% in October from the previous month, pushed by information and communication services.
Petrobras on the rise
Brazil will be a main driver of global oil production growth in 2020. Brazil’s Petrobras is on track to become the world’s largest oil producer among publicly listed companies by 2030, based on Rystad Energy’s latest data and forecasts.
Through Brazil’s recent lease auctions, the world’s fastest growing oil producer gained nearly full control of more than eight billion barrels of oil in the Buzios field, where a sixth floater is being planned. To develop these and other resources off shore, Brazil is set for a $70 billion offshore capital investment between 2020 and 2025, solely on field development.
Brazil’s oil output reached a record of 3 million barrels per day (bpd) in November, according to the Brazilian National Petroleum Agency.
That was responsible for a total rise of oil and gas production to 3.95 million barrels of oil equivalent daily – which also represents a record-breaking figure.
Oil production grew 4.3 percent compared with October and 20.4 percent with November 2018. Natural gas output also set a record in November, reaching 137 million cubic meters a day, up 3.8 percent from October and up 21.6 percent year-on-year. Brazil’s giant fuel reserves in deep waters off its Atlantic coast recently started to be more extensively tapped.
Brazil Broker XP Surges in Debut After US$1.96 Billion IPO
Brazil’s largest brokerage by equity-trading volume, XP Inc., rose 28% in its trading debut after its initial public offering topped expectations to raise US$1.96 billion.
XP became more valuable than Banco BTG Pactual SA, Brazil’s biggest standalone investment bank, which is worth US$15.7 billion. The listing is the biggest by a Brazilian firm since finance company Pagseguro Digital Ltd.’s US$2.6 billion offering on the New York Stock Exchange in January 2018, according to data compiled by Bloomberg.
The IPO is the fourth-largest in the USA last year. The company is focused on Brazil, where banking concentration presents great opportunity. XP’s principal new initiative is creating a bank, which will allow it to launch new products that capture a bigger share of clients’ investments.
Mercosul – European Union Free Trade Agreement
In 2019, after twenty years of negotiation, the Mercosul (Brazil, Argentina, Paraguay and Uruguay) and the European Union concluded a free trade agreement, still to be ratified.
This is part of a broader agreement of association between the two blocs and represent a contribution to multilateralism by countries that share not only history, but also a strong people to people relations and common values.
The agreement together with the one signed with European Free Trade Association (EFTA) will advance trade and development while enhancing cooperation and the rule of law in international relations towards important regional and global goals. This is an encouragement for future trade dealings with Australia.
The Australian Department of Foreign Affairs – DFAT Update on Australia-Brazil relations
In October 2019, the Department of Foreign Affairs and Trade (DFAT) published a bulletin “Insights-connecting Australia Business to the World” with highlights on Brazil’s economy, trade, investment and commercial opportunities.
The publication also addresses trade policy and negotiations with a reference to exploratory trade talks between Mercosur and a range of other countries including Japan and Vietnam.
In reference to the fact that Brazil does not have an Free Trade Agreement with Australia, it states that
“Australia continues to engage with Brazil through the CER-MERCOSUR dialogue and bilaterally to identify ways to strengthen trade and investment ties. Australian and Brazilian businesses cite non-stop flights between both countries and an agreement on double taxation as priorities for enhancing their engagement”.
For access, connect with the following link: https://dfat.gov.au/trade/engage/economic-diplomacy/Documents/brazil-market-insight.pdf
Message from Ambassador Sérgio Eduardo Moreira Lima, Canberra. Dec 2019.