Several factors are seen as being likely to negate the effect of Brazil's stronger-looking exports on investment demand at this stage of the cycle. Currency-led gains can't negate the effect of lower global demand. Given the shape of the global economy, a continued improvement in exports could not be forecasted.
In fact, forecast of 3.5% annualised growth in real exports from next year onwards equates to nearly a third of the real export gains achieved by Brazil over the 2003-07 period. Currency may restore competitiveness, but lack of demand could contain the gains, particularly given the low price elasticity of Brazilian exports.
According to Societe Generale,
- Falling consumption to contain investment appetite- private consumption is estimated to decline by 2.6% this year and by 1.7% in 2016. The vicious circle between consumption and investment (low investment - higher unemployment - lower consumption demand - lower investment) is likely to keep the export gains contained.
- The lagged impact of monetary tightening- This is likely to be one of the key factors that could keep the investment acceleration in check, irrespective of the demand situation.
- Impact of fiscal tightening on public investment - The ongoing efforts to contain public spending in order to improve fiscal balances could lead to a reduction in public sector investment. We expect public spending to decline in both 2015 (-1.4%) and 2016 (-1.0%).
- Low investor confidence - In view of the above external (including the low commodity prices and demand) and domestic reasons, investor confidence has continued to decline and there are no signs of it bottoming out.
