Brazil on the Verge of Surpassing Italy to Become World’s 7th Largest Economy

Car production in Brazil

Car production in Brazil The economy of Brazil will likely be larger than that of Italy next year, according to the latest data from the International Monetary Fund (IMF). Brazil is already the 8th-largest economy in the world and will likely become the 7th-largest next year, according to a Latin Business Chronicle analysis of the IMF projections.

It will keep that rank through 2015, IMF forecasts show.

Brazil’s current size makes it larger than both Russia and India. Along with China they are grouped in the so called BRIC group of emerging market stars.

Brazil’s GDP now stands at 2 trillion USD compared with 1.5 trillion for Russia and 1.4 trillion for India. (China’s is 5.7 trillion).

Next year, Brazil’s GDP will likely grow to 2.2 trillion. That compares with 2.1 trillion for Italy. In 2015, it will grow to 2.8 trillion, the IMF forecasts.

The production of car in Brazil is forecasted to grow 13.1% this year, more than the 6.5% expansion predicted previously according to the national automakers’ association Anfavea. Output will probably end the year at 3.62 million units, Anfavea said.

Car exports continue to recover despite the strength of the Brazilian currency, but imports are still gaining ground amid the rapid strengthening of the real.

Anfavea upped its forecast to 750,000 exports this year, including assembled and unassembled vehicles, with revenue of 12.8 billion USD, from its previous estimate of 620,000.

“Economies overseas are recovering and they are absorbing more unassembled vehicles from Brazil,” Anfavea President Cledorvino Belini said at a news conference. “Of course, we’d prefer to export assembled vehicles.”

Car exports reached 569,524 in the first three quarters of this year, more than 76% higher than volumes for the year-ago period, Anfavea said.

The new forecast, an update from a previous boost in August, reflects a sharp turnaround from 2009, when sales plunged due to the global economic crisis. The number also returns close to the 2008 levels, when 735,000 vehicles were exported, for receipts of 13.9 billion. In the first nine months of the year, exports brought in $9.2 billion, a gain of 62.5% compared with the year-ago period.

Still, exports have declined as a percentage of overall sales, while imports are steadily climbing. Exports now account for about 15% of production down from 31% in 2005, while imports have risen to 18% from 5% over the same period.

That reflects the strength of the Brazilian currency in recent years. The Real is now back to levels against the dollar last seen in the days before the collapse of Lehman Brothers in September 2008, which makes Brazilian cars more expensive for foreigners to buy. Belini said that part of the currency impact, but not all of it, can be offset by higher productivity.

“We have steel that’s 40% more expensive than international steel, electric energy that’s notably higher than our competitors out there, and when you add that to a stronger Real that leads to falling exports and rising imports,” Belini said.

“What worries isn’t the number, but the trend,” Belini said. “We have a trade deficit of 3.8 billion USD in the auto industry through August and we’re projecting it will reach 5 billion USD by the end of this year,” he said. “There’s no ideal number of exports or imports but a point of equilibrium between exports and imports would be to zero that deficit.”

Mercopress

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