Latin American Hang Over

It’s Groundhog Day for Brazil. As if 2015 was not bad enough, the International Monetary Fund (IMF) and other forecasters have downgraded its economic forecast for Brazil for 2016.

To recap 2015: Brazil fell deep into the longest running recession since the 1930s, coupled by the Petrobras Investigation and high unemployment. Brazil’s economy also shrank 3.8 percent last year, according to the IMF.

IMF now believes Brazil’s economy will shrink 3.5 percent this year, down significantly from its previous estimate of a one percent contraction. Others had predicted minimal growth have also revised down their estimates.

Venezuela is expected to face a catastrophic economic contraction of 4.8 percent in 2016.

Other Latin American countries are in for another tough year as their economies struggle with weak Chinese demand for their raw materials.

Per Enterprise Florida, Total Merchandise Trade by Country through September 2015 ranks our top 10 markets as follows:

 

  1. Brazil
  2. China
  3. Colombia
  4. Chile
  5. Japan
  6. Dominican Republic
  7. Mexico
  8. Honduras
  9. Peru
  10. Venezuela

 

In 2016, Chile is forecast to grow 2.4 percent, Peru 3.5 percent, and Colombia 2.6 percent. Colombia is in a much more fragile position than a year ago, more vulnerable to external shocks.

What This Means For Florida:

Many of our top trading partners will be experiencing a challenging 2016, yet there are some bright spots in Latin America: Mexico and Argentina.

Mexico’s growth has picked up to the fastest in two years in the third-quarter while inflation fell to a record low, helped by government efforts to spur competition. Mexico’s growth remained unchanged at 2.8 percent. In Argentina, optimism remains high with since they elected a new President. Argentina was the only Latin American country have its growth outlook revised higher. It is Florida 11th largest trading partner.

While the Latin American down turn is dominated by the Brazilian recession, opportunities remain. Enterprise Florida will be taking a trade mission to Mexico May 23, 2016 – May 26, 2016 and is planning a future trade mission to Argentina. Latin American still remains a significant market for Florida. While the downturn will have an impact on overall trade number and affect our exports, Florida still has nuggets to mine.

A Simple Guide to China’s Devaluation of the Yuan

What happened?

China devalued the Yuan against the U.S. dollar

 

Why did this happen?

China devalued its currency against the U.S. dollar to make Chinese goods cheaper and boost exports after Chinese exports declined 8.3 percent in July.

 

What does this mean?

The Yuan is loosely tied to the U.S. dollar and has been strengthening as the U.S. economy picks up. The U.S. Fed is considering a rate hike in the near future as the U.S. economy continues to move ahead, thus further strengthening the dollar.  As China is an export-oriented economy, this potential increase would put greater pressure on declining exports.

 

What are the impacts to the U.S.?

A cheaper Yuan will mean a decrease in U.S. exports as Chinese products will be less expensive.  As other nations consider the impact of the Chinese devaluation to their exports, they too may devalue their currencies to remain competitive with the Chinese goods further putting pressure on US exports.

 

What are the Impacts to other parts of the world?

The Chinese currency implications go beyond the devaluation as it’s a symptom of its overall economic health as the Chinese growth engine continues to slow down.  This will have far reaching implications for emerging markets that export heavily to China, particularly commodity exporters heavily dependent on China like Brazil, Russia, South Africa, Indonesia, and Malaysia. A weaker yuan is also a concern for developing nations that compete with China in exporting similar goods and services to similar destinations. Taiwan and South Korea face some of the greatest risks, but Thailand and the Philippines may also be affected and even Mexico may feel the impact of cheaper Chinese goods.

 

All this comes at a time when emerging markets are facing other factors and issues are affecting their growth.  While larger economies are able to sustain and mitigate the Yuan depreciation, China is still the world’s second largest economy, and emerging markets which heavily depend on China are important to the overall global economy. Their health will have an impact on global markets.

 

 

What does this mean for Florida?

 

The Chinese currency depreciation will have an impact on Florida exports, which compete with China.  Florida will need to remain vigilant to the currencies of Florida’s trading partners such as Taiwan and Korea, who are strongly tied to Chinese trade. As their currencies may weaken as well, adding to the fallout of the Chinese devaluation.  The Florida Chamber’s International Program will keep you up to date as this issue unfolds.

 

NEED MORE INFO?

For more information on how this affects Florida’s future, please contact the Florida Chamber’s Chief Economist Dr. Jerry Parrish at jparrish@flfoundation.org.

MERCOSUR

MERCOSUR, a trading bloc made up of South American countries, was created in 1991 to promote free trade and the fluid movement of goods.

MERCOSUR bloc met in July at their 48th summit where Bolivia was officially incorporated as its sixth permanent member.  More newsworthy, particularly in light of the bloc’s troubled economic performance, there was some progress towards advancing on long-stalled trade initiatives, specifically an agreement with the EU.  These initiatives appear to show promise are in part due to mounting pressure from Brazil to gain greater market access.

Trade among member countries continues to decline with a 20.3 percent drop in the first quarter of 2015 compared to the same period last year. Last year, intra-bloc trade declined 13.1 percent.  All of the Mercosur member countries were hit with a decline in exports to other member states according to a report recently released by the Argentine Chamber of Commerce (CAC). The report highlighted the following:

  • Venezuela with a 46.3 percent decline
  • Uruguay with a 32.6 percent decline
  • Argentina with 24.9 percent decline
  • Brazil with 13.7 percent decline
  • Paraguay with a 12.5 percent decline

Intra-regional trade has not been the only problem as the overall export sector has taken a hit due to commodity prices and economic instability as well as uncertainty facing its largest member nations.

Obstacles still remain such as Mercosur’s Resolution 32/2000, which requires consensus from all members in trade issues, including bilateral agreements.  Resolution 32/2000 has been called a source of gridlock by Forbes because of the requirement of consensus from all members on all trade issues. Overcoming a culture of protectionism will also be a challenge as this has led to a countless regulations which will be difficult to reverse and will likely makes any short term gains improbable.

What does this mean for Florida? A decline in MERCOSUR bloc economies has had an impact on Florida’s overall trade numbers. Brazil, Florida’s most important trading partner, saw a decline of 11.3 percent, significantly affecting Florida exports in several sectors.  Argentina and Venezuela are also important Florida export destinations and their instability and uncertainty have also had repercussions.

But bright spots remain in Latin America. Peru, an important member of the Pacific Alliance, is growing and is well positioned for additional growth.  While the Pacific Alliance bloc is not as large – economically speaking – as MERCOSUR, its benefits from strong policies that favor increased market access and openness which will certainly generate new opportunities for Florida exporters.

 

Get Involved:

Learn what your business needs to know in order to successfully trade with the world’s growing economies by becoming a part of the Florida Chamber’s Global Florida program. Contact Alice Ancona today for more information.

A Focus on Brazil and Mexico

Brazil

For the fifth time this year, economists have reduced their economic forecasts for Brazil for this year and next year. Economists also increased their estimate for the 2015 inflation rate to 8.97 percent from 8.79 percent, according to a weekly central-bank survey.

The government of Brazil announced at the end of June the launching of its National Export Plan (PNE) to increase exports as a means of helping prop up its weakened economy.  The plan will focus on five areas: access to markets, commercial marketing, ease of trade, export financing guarantees and the improvement of the fiscal system related to foreign trade.

Brazil’s president recently outlined a $65 billion infrastructure plan to sell to the private sector new concessions to build and operate nearly 7,000km (4,350 miles) of roads, as well as four large airports and a number of ports and railways.

Under the package, Brazil will offer concessions worth about R$66bn for roads to connect soybean growers of the interior to ports, R$86bn for railways, R$37bn for ports and nearly R$9bn for airports, including for the cities of Salvador, Florianópolis, Fortaleza and Porto Alegre.

President Rousseff stated that her administration will directly engage in activities that will expand and diversity market access for Brazilian products and will be making more official trips abroad to support the plan.

 

Mexico

Mexico’s Global Economic Activity Index rose 2.4 percent in April compared to April 2014, an increase fueled by growth in the agricultural sector.

The Mexican government will hold its first of several petroleum auctions this week.  This will effectively end the monopoly of state-owned Petroleos Mexicanos (PEMEX) which began in 1938 when the country’s oil fields were nationalized.

The auction will cover 14 shallow-water blocks in the southeastern Gulf of Mexico. Seven groups and 17 companies — including two of the world’s largest, Exxon Mobil Corp. and Chevron Corp. — have prequalified to bid. Mexico will auction onshore fields later this year, followed by auctions of deep-water and shale fields.

Mexico is expanding beyond the low-wage, low-value manufacturer that it was when NAFTA was first implemented over 20 years ago.  With an increasingly skilled Mexican workforce and a growing middle class, foreign direct investment into high-value manufacturing facilities has been increasing with more in the works.

This is a near-shoring trend that was recently fueled by the west coast port congestion which triggered many to review their supply chains and look for alternatives that would provide them with more consistent and reliable production centers.  Mexico has multiple routes of entry in the US and offers reduction in cost of transportation and improved speed to market.

Mexico is also the second-largest source of high-value, high-tech products such as cell phones, gaming consoles and computers, after China.

The Mexican government is moving to enhance its competitive position by investing heavily in road, rail and aviation infrastructure improvements and by streamlining its customs procedures.

  • The U.S. Department of Transportation recently began permitting Mexican motor carriers to apply to conduct long-haul, cross-border trucking services. Under this program, Mexican trucks must be inspected and are required to meet the same safety requirements as U.S. trucks.
  • Mexico is continuing to work with Canada and the U.S. to improve customs harmonization and signed on to the Wassenauer Agreement on export controls last year which, along with implementing an export control system along with its single platform on imports they now have greater trade compliance
  • Cargo security is improving and IP protection is as strong as or stronger than in many other countries around the world.

Opportunities for Florida Firms:

Over the next four years, the Government of Mexico plans to invest more than $600 billion to modernize its energy, transport, telecommunications, and water and environment sectors. In order to support the country’s ambitious reform efforts and position U.S. firms for success implementing critical infrastructure projects, USTDA developed the Mexico Infrastructure Project Resource Guide to provide U.S. industry with details on Mexico’s infrastructure sectors and specific infrastructure development plans through 2018. The resource guide includes over 25 project profiles, complete with real-time market intelligence, detailed project plans, contact details for key decision makers, procurement timelines, and planned financing mechanisms.

Project profiles in the guide are separated by sector, and include energy, transport, telecommunications, and water and environment. The full guide can be viewed and downloaded on USTDA’s website.

Latin American Outlooks and What They Mean for the U.S. and Florida

The region’s economy is projected to grow only 0.1 percent this year according to economist projections. The combined forces of worsening terms of trade, a stronger dollar, a slower Chinese economy as well as economic crises in Argentina, Brazil and Venezuela are all hampering growth.

 

What do these changes mean for the U.S. and Florida?

  • Reduced Exports:
    Weaker demand and a stronger dollar impacting Latin American markets may result in reduced U.S. and Florida exports.
  • Decreased Tourism:  
    Stalling economies have caused tourism and business travel to the U.S. to take a hit.  Florida’s tourism industry, a crucial part of the state’s economy, may suffer.

However, there are several positive opportunities for both the U.S. and Florida within several nations:

Chile

Chile’s industrial sector remains stable for the remainder of the year. While copper demand has taken a hit, renewable energy and construction sectors are likely to be the two major growth sectors in 2015. A stable political environment, rising domestic demand for energy, and a significant pipeline of infrastructure projects are expected to drive growth in the short run.

 

Colombia

Colombia’s industrial sector remains stable and diversified. Continued domestic demand from an increasing middle-class population and steady investment are expected to create GDP growth for the rest of the year. Reduced oil prices will have a minimal impact on growth.

 

Mexico

Mexico seems to be a bright spot for the Americas. A steady improvement of the U.S. economy and a depreciated PESO is expected to increase Mexican exports as well as foreign investment inflows in 2015. Reformed laws which have opened up its energy sector are also expected to attract significant investment.

Even more opportunities arise from the area as a whole. Latin America, with a population of approximately 600 million people, is home to nearly 15,000 “ultra high net worth” individuals, or people with fortunes of at least $30 million, according to the luxury industry consultancy Wealth-X.

The number rose 5 percent last year, while the number of billionaires in Latin America rose to 151, a 38 percent increase resulting in the fastest growth rate for billionaires of any region on earth.

The region’s largest economies, Mexico and Brazil, remain the largest generators of growth and wealth. Mexico is the world’s second-largest market for private jets, behind the US, with Brazil poised to surpass it within the next decade, according to a recent market study by the Brazilian jetmaker Embraer.  According to the market research firm Euromonitor, the Latin American luxury market will total $26.5 billion in 2019, up 88.8 percent from 2014 boasting the strongest growth in the world.

Florida’s Agriculture Industry Benefits from International Trade

FOR IMMEDIATE RELEASE
CONTACT: Edie Ousley, 850-521-1231 or 850-251-6261
eousley@flchamber.com

 

TALLAHASSEE, FL. (May 12, 2015) – Nine of the top 10 markets for Florida agricultural exports are located in the Americas, according to research from the Florida Chamber’s Global Florida Program.

“The Americas present a large portion of Florida’s international trade opportunity, especially for Florida’s agriculture industry,” said Alice Ancona, Director of Global Outreach for the Florida Chamber of Commerce. “Canada continues to be Florida’s number one destination for Florida agriculture products, while Brazil continues to rank as Florida’s top trading partner and export destination. Florida has a once in a lifetime opportunity to take advantage of changing trade routes and become the global hub for international trade.”

Florida ranks eighth in the United States for “Fresh from Florida” exports of agricultural commodities, valued at an all-time record of $4.2 billion, supporting more than 109,000 jobs and representing an economic value of more than $13 billion.

Canada also tops the list as the top international country for visitors and dollars spent in Florida- with more than $4 billion spent. Growing trade relationships with countries like Chile, Colombia, Venezuela, Argentina and Peru work to create a competitive environment for Florida’s exporters – 95 percent of which are small-to-mid-sized businesses— to grow and thrive. In fact, the Florida Chamber recently led a Florida delegation along with Lieutenant Governor Carlos Lopez-Cantera, to Peru to sign a Memorandum of Understanding (MOU) to help promote trade and investment opportunities between Peru and the United States.

The impact of international trade to Florida’s economy cannot be denied. International business and foreign direct investment accounts for approximately 17 percent of Florida’s economic activity, and directly supports more than 1 million Florida jobs. Florida is the seventh largest exporter of state-origin products with Florida-origin exports totaling more than $58.6 billion and exports from Florida supporting 275,221 U.S. jobs in 2013.

“International trade is critical not only for Florida’s overall economy, but for individual families and communities across the state, as well as visiting consumers,” said  Doug Wheeler, President and CEO, Florida Ports Council. “Increasing trade creates jobs and brings a better quality of life to our state.”

The Florida Chamber’s Global Florida Program’s mission is to educate and promote business opportunities, collaborate and advance policy initiatives in each of the four major geographic regions:  Americas, Asia Pacific, Europe and Middle East/Africa. Agriculture Commissioner Adam Putnam recently sponsored the Florida World Trade Month resolution, which was signed by Governor Scott, Attorney General Pam Bondi and CFO Jeff Atwater.

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The Florida Chamber of Commerce is the voice of business and the state’s largest federation of employers, chambers of commerce and associations, aggressively representing small and large businesses from every industry and every region. The Florida Chamber works within all branches of government to affect those changes set forth in the annual Florida Business Agenda, and which are seen as critical to secure Florida’s future. The Florida Chamber works closely with its Political Operations and the Florida Chamber Foundation. Visit www.FloridaChamber.com for more information.

Did You Know Florida is the 7th Largest Exporter of State-Origin Products?

The impact Florida’s international relationships have on our economy cannot be denied. As the seventh largest exporter of state-origin products, Florida-origin exports total more than $58.6 billion and exports from Florida supported 275,221 U.S. jobs in 2013.

“Florida has come a long way in building international economic development efforts, but our work is far from over,” said Doug Davidson, Market Executive of Global Commercial Banking at Bank of America Merrill Lynch. “At Bank of America, we support the Florida Chamber Foundation’s research in trade and logistics because we know that Florida’s future lies in being globally competitive.”

International business and foreign direct investment account for approximately 17 percent of Florida’s economic activity, and directly support more than 1 million Florida jobs. But as our economy grows, Florida must also continue to diversify export destinations- one of the strategies recommended in the Florida Chamber Foundation’s Florida Trade and Logistics Study 2.0.

From the Americas and beyond, Florida is quickly becoming the hub for global trade, especially in emerging markets such as Africa, Latin America and the Middle East- where growth projections remain higher than in developed markets and where purchasing power continues to increase.

The U.S. currently has five free trade agreements in the Middle East region. U.S. free trade agreements have helped expand Florida’s export opportunities. In fact, more than one-third of Florida exports go to countries that have trade agreements with the United States.

When oil exports are excluded, Florida is the number one exporter to Central and South America, with Florida exporting more than $30 billion in goods to that region in 2014.

While Florida’s top trade partners are Brazil and Canada, many emerging countries from several regions make Florida’s top 10 importers list, such as Peru (the site of a recent Enterprise Florida economic development mission trip that was attended by Alice Ancona, Director of Global Outreach for the Florida Chamber of Commerce), United Arab Emirates and Germany.

DYK_Chart_Exporters

As global trade and economic activity expand over the coming decades, international commerce will continue to play a role as an essential driver of Florida’s future. Diversifying Florida’s export destinations is a strategic step in accomplishing this and is outlined in the Florida Chamber Foundation’s Florida Trade and Logistics Study 2.0.

Florida can create a stronger global economy and jobs for future generations through increased investment in ports and infrastructure projects and expanded export manufacturing and value-added services.

The Florida Chamber is committed to connecting Florida’s business community to global opportunities and leveraging resources and investments to maintain and expand Florida’s position as an international trade leader. The International Business Council is launching a new program to support Florida businesses as they explore opportunities to diversify into new export markets. GLOBAL FLORIDA will focus on connecting them to resources, policy initiatives and business intelligence on market trends for four of the major geographic regions of the world: Americas, Asia Pacific, Europe and Middle East/Africa.

Together we can help Florida become the number one hub for global trade. Join the state’s international business community at the Florida Chamber’s International Days – a two-day event where the top international trade and industry experts will convene to discuss topics such as export diversification.

 

Share Your Story:

Can’t make International Days? Tell us your story and why international relationships matter to Florida by contacting Alice Ancona at aancona@flchamber.com.

About the Florida Scorecard:

The Florida Scorecard, located at www.TheFloridaScorecard.com, presents metrics across Florida’s economy. Each month, the Florida Chamber Foundation produces a Scorecard Stat that takes an in-depth look at one aspect of Florida’s economy. If you would like additional information on the Weekly Scorecard Stat or on the Florida Scorecard, please contact Dr. Jerry Parrish with the Florida Chamber Foundation at 850.521.1283.

Enterprise Florida to Lead Delegation for Global Logistics Trade Show in Brazil

By Phil Ammann

Florida’s official private-public economic development agency announced on Tuesday that it will lead a delegation of regional companies for a logistics trade show in São Paulo.

Enterprise Florida (EFI) will travel to a pair of co-located trade shows for Movimat + Transport & Logistics, scheduled for September 16-18 in São Paulo, Brazil. The goal is to provide Florida small businesses with networking opportunities and face-to-face appointments with top global businesses.

Brazil, with the largest economy in Latin America and the seventh largest in the world, is also a leader in consumer purchasing power. It also enjoys one of the fastest-growing economies in the world, with an average annual GDP growth rate of more than 5 percent, putting it on pace to become one of the five largest economies on the planet.

“Participating in this trip will provide companies with tremendous exposure,” said EFI Senior Vice President Manny Mencia, head of International Trade & Development. “As the gateway to Latin America, Florida’s logistics and distribution industry is poised to grow further with the Panama Canal expansion, and the numerous infrastructure developments and upgrades underway around the state.”

Movimat-Intralogistics Trade Show is the world’s foremost showcase of equipment and services for large manufacturers, wholesalers, retailers and distributors. More than 200 brands — from packing, handling and forklifts to storage, elevation and automation – will be on display.

Attending the Brazil event are logistics industry leaders, there to evaluate the newest technologies, simulations and presentations for efficient movement of products and services. The show also provides a springboard for companies seeking improved control of operations and costs.

Among the target industries are rail, seaport and waterway transportation, roadway infrastructure, material handling, packaging and Information Technology systems.

Mencia points out that Florida is home to a number of regional and global headquarters, as well as an international banking center and a diplomatic hub with a Consular Corps representing nearly 80 nations. Florida’s location also makes it the perfect place to take advantage of easy access to global markets.

The Brazil tour is only one of many EFI-sponsored overseas trade missions and exhibitions worldwide. In the 2013-14 fiscal year, EFI hosted 17 key international trade shows and missions, with a total of 724 participants. In all, they generated more than $820 million in projected export sales.

Registration for Florida businesses wanting to join the Brazil trade show expedition is through August 22. For more information on Movimat + Transport & Logistics, contact Luis Perez-Codina at 305-808-3670 or lperez-codina@eflorida.com.

China and Brazil: Growing Together or Apart?

by Any Freitas

China and Brazil’s relations have been characterized by an ‘imperfect interdependence’ thus far. How will that change going forward?

Last April, Brazilian and Chinese Foreign Ministers met in Brasilia to launch the ‘First Strategic Global Dialogue’ between the two countries. Sino-Brazilian strategic dialogues would now be held annually, providing China and Brazil the occasion to regularly meet and reassess their common agenda. In a year when Brazil and China celebrate 40 years of diplomatic relations, a kick-off meeting of this kind bodes well for the future of their relationship.

Despite the distance, Brazil and China have grown remarkably closer in the last decade. Economically, there seemed to be a sort of ‘natural interaction’ between China’s export-focused, industrialized economy and Brazil’s economy which has been primarily an industrial commodities provider.

Quite naturally, then, trade flows between the two giants rose from $6.68 billion in 2003 to over $90 billion in 2013, making them the biggest partners within the BRICS. Since 2009, China has replaced the US and become Brazil’s main trade partner. Likewise, Brazil has been in China’s “top 10” partners list for some years now (7th in 2011, 9th in 2013) and is one of the key destinations of Chinese foreign direct investment (FDI).

Yet, cooperation between the two countries has gone well beyond mere trade and investment, encompassing areas such as education, agriculture, biofuels, nanotechnology and satellite technology. Politically, Brazil and China have also strengthened their links, promoting, inside or outside the BRICS (Brazil, Russia India, China, South Africa), a common agenda on issues of global concern, from development cooperation to international financial regulation.

However, as solid as their relationship may seem, current trends in both countries may seriously challenge what once seemed like a ‘perfect match’. China and Brazil are now being called to face their own (economic) dilemmas and the result of such a revision may lead to a progressive cooling off of their relations–and possibly not only economic ones.

New Model, New Opportunities?

How to secure long-standing and stable growth? For China, at least since 2013, the answer should be found in its domestic market. Partly pushed by the global economic context, China has recently started a revision of its macroeconomic policies and, accordingly, of its growth model. As part of this revision, state investments should now prioritize programmes to stimulate household consumption and job creation, moving away from the focus on industry and infrastructure.

Chinese authorities should moreover promote a gradual liberalization of exchange and interest rates, which could lead to an appreciation of the yuan, which could have important consequences on the prices of Chinese products, domestically and at a global level.

 

Officially announced by Chinese authorities, these measures have been positively received by analysts who believe they should bring greater transparency and predictability to the Chinese economy. They should moreover open new opportunities to countries like Brazil, whose companies would finally be able to compete with China not only in its domestic market, but also in Latin America, where they have been losing ground.

Hence, all seems like good news to the world, in particular to Brazil. Even if there is some truth in this analysis, existing challenges, in Brazil but also in China, may prevent Brazilian companies from seizing the opportunities offered by this Chinese ‘transition’.

While the number of Chinese companies (and investments) in Brazil has been on the rise since 2010, Brazilian companies (with a few exceptions, like Embraer, Vale, Votorantim or BRF-Brazilian Foods) have been struggling to enter the Chinese market, considered too closed and difficult to penetrate. Brazilian authorities (and private sector) see this gap as problematic, and would expect China to be a bit more welcoming to Brazilian business.

Beyond the most evident barriers (linguistic, legal, infrastructure, etc.) they meet when trying to access the Chinese market, Brazilian industries also face important domestic limitations. Among these challenges are Brazil’s complex legal framework, excessive bureaucracy, heavy tax system, poor infrastructure, low-skilled labor force, high inflation and interest rates. Coupled with the lower growth rates of the last few years, these challenges have been increasing the so-called “Brazil cost”, and hence considerably impairing the competitiveness and global reach of Brazilian industries.

Just like China, Brazil is also at a decisive moment when it needs to reconsider the foundations and orientation of its economic model. Yet, while China should strive to invest less and spend more, Brazil needs to shift from a model that privileges domestic consumption, to one in which investment and production are placed at the center. For both countries, the challenges are huge and will imply (internal) struggles, political will and long adaptation periods.

China has so far managed to sustain growth while implementing reforms. In Brazil’s case, on the other hand, despite the government’s attempts, appropriate set of measures that meaningfully boost competitiveness and integration of Brazilian companies into the global market have yet to be found. However, as most analysts point out, without consistent, long-term strategies to tackle such a challenge, there are few chances that Brazil will be able to improve its economic performance–and hence benefit from China’s transition. This seem all the more pressing since commodity prices (that represent nearly 80% of Brazil exports) should progressively decline in the next years, negatively affecting Brazilian trade flow and economic results.

Brazil Industrial Output Drops for Fourth Straight Month

By David Biller

Brazil’s industrial production in June dropped for the fourth straight month as demand cools at home and in Argentina, a major export market.

Production fell 1.4 percent after revisions showed it contracted 0.8 percent in May, more than originally reported, the national statistics agency said today in Rio de Janeiro. The decline was smaller than the 2.3 percent drop in the median estimate from 38 economists surveyed by Bloomberg. Production fell 6.9 percent from the year before, versus a 7.9 percent decline forecast by analysts.

Data showing the fourth-straight decline in output come two days after leading presidential candidates courted industrial sector executives, whose confidence has hit a record low. Industry is struggling to regain its footing as higher interest rates damp domestic demand, a stronger currency makes exports less competitive, and neighboring Argentina, the largest export destination for Brazilian passenger vehicles, defaults on debt amid a deepening recession.

“We have a recession in the industrial sector, or four consecutive quarters of decline,” Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. (GS), said by phone from New York. “It’s going to be a difficult year, given headwinds we have from Argentina that are likely to intensify after the default and still very weak domestic demand.”

Swap rates on the contract maturing in January 2017 rose nine basis points, or 0.09 percentage point, to 11.58 percent at 3:26 p.m. local time. The real strengthened 0.2 percent to 2.26 per U.S. dollar.

Auto Production

Brazil’s central bank has held the benchmark Selic (BZSTSETA) rate at 11 percent since April, after raising it from a record-low 7.25 percent in 2013 in order to stifle demand and stem inflation. The economy expanded 0.2 percent in the first quarter, half the pace of the prior three months as family consumption contracted.

Automobile production in Brazil declined 17 percent to 1.57 million units in the first six months of 2014 from a year earlier, as exports dropped 35 percent to 169,457 units, according to car manufacturers’ association Anfavea. Total exports to Argentina fell 20 percent in the same period, according to the Trade Ministry.

The economy of Argentina, which missed an interest payment this week after negotiations with creditors failed, will shrink 0.9 percent in 2014, according to analysts surveyed by Bloomberg. Brazil’s Finance Minister Guido Mantega told reporters yesterday the situation in Argentina currently has no impact on Latin America’s largest economy. Last month Brazil extended tax cuts on cars to stimulate domestic demand.

Argentina Trade

Exports to Argentina fell 22 percent in the first seven months of 2014 from last year as sales of fuel, cars and auto parts to the neighboring country dropped in July, Brazil’s Trade Ministry said in a separate report today. Argentina was Brazil’s third biggest export market through July, it said.

“There’s not much to cling to, at least because the industrial sector is one of the parts of the economy that is most exposed to any problems in Argentina,” Neil Shearing, chief emerging-markets economist at Capital Economics Ltd., said by phone from London. “Argentina is a big market, so that adds to the headwinds for industrial recovery.”

Output of capital goods fell 9.7 percent, the statistics institute said today. Production of consumer durable goods fell 24.9 percent. Of the 24 industries studied by the statistics institute, output in 18 dropped, including a 12.1 percent decline in cars and auto parts.

Industrial Confidence

Today’s better-than-expected headline figure is largely explained by downward revisions to both May and March numbers, according to Goldman’s Ramos. May output fell 0.8 percent, revised from a 0.6 percent decline, and March output dropped 0.7 percent, revised from a 0.5 percent slide.

Industrial confidence has fallen in all but one of seven months this year, and in July reached its lowest level on record, according to the National Industry Confederation, known as CNI. Brazil’s real has gained 3.9 percent in 2014, the second-best performance against the dollar among 16 major currencies tracked by Bloomberg.

Subsidized lending from state development bank BNDES has guaranteed competitive credit, and tax cuts are “fundamental” to competitiveness, President Dilma Rousseff said July 30 at an event hosted by the CNI. Aecio Neves, Rousseff’s closest challenger, said a weaker currency seems “absolutely essential” to ensure competitiveness and boost domestic output.

The June 12 to July 13 World Cup also affected industry as local governments declared public holidays on game days, according to Pedro Tuesta, an economist at 4Cast Ltd. Gerdau SA (GGB), Latin America’s largest steelmaker, saw second-quarter net income drop as the monthlong tournament led to declines of steel shipments in its Brazil unit, which represents about a third of the company’s revenue.

Rousseff’s lead over Neves in a possible second round has narrowed. She had 44 percent support to Neves’s 40 percent, according to a July 15-16 Datafolha survey published July 17. The gap of four percentage points falls within the margin of error of plus or minus two percentage points.

Azul Targets Gol With Florida Fares as Rivalry Heats Up

By Christiana Sciaudone and Jessica Brice

Azul Linhas Aereas Brasileiras SA will charge “well under” $1,000 round-trip when it starts flying between Sao Paulo and Fort Lauderdale, Florida, later this year, founder David Neeleman said.

The flights will have 271 seats in two classes on Airbus Group NV (AIR) A330-200 planes and promotional fares that will be as low as $600 when service begins, possibly in December. Azul will compete for passengers with Sao Paulo-based Gol Linhas Aereas Inteligentes SA (GOLL4), a low-cost carrier that flies to Miami via Santo Domingo, Dominican Republic, on Boeing Co. (BA) 737s.

“We’ll price competitive with those guys,” Neeleman said yesterday in an interview at Azul’s headquarters in Barueri, Brazil. “We’re going to have a certain percentage of seats that will be very cheap.”

A flight to Miami on Gol for the first week of October cost about $1,079 in a recent online search. Latam Airlines Group (LFL), which operates under the Tam brand in Brazil, was offering tickets starting at $930 for the same time period between Sao Paulo and Miami.

International flights are key to both Gol and Azul’s strategies. Gol is counting on its U.S. flights and partnerships with international airlines to help increase foreign currency revenue to pay for U.S. dollar-denominated debt. Six-year-old Azul is branching into international flying after making a name for itself in Brazil by offering routes to underserved cities like Tefe and Coari.

Azul will expand to Los Angeles and Las Vegas with its seven A330s, Neeleman said. In 2017, it will receive new A350-900s and will have to find new destinations at that time, which could include European cities.

IPO Plans

The company is looking at revisiting plans to go public in December or January, after having shelved an initial public offering in the past. Azul’s investors are pressuring the company to go public, Neeleman said.

“They’ve been in for six years, so that’s a long time for a private-equity investor,” he said.

Brazil hasn’t seen a single IPO this year ahead of the October presidential election. Incumbent Dilma Rousseff is leading the polls.

“Regardless of the outcome of the election, we can go public,” Neeleman said.

Azul is also poised to be the biggest beneficiary of the government’s regional aviation program, since it flies to the most cities already and has the largest number of airplanes suitable for smaller airports, Neeleman said. Brazil is offering subsidies totaling 1 billion reais ($443 million) as of 2015, an amount that will be reviewed annually, said Civil Aviation Minister Wellington Moreira Franco in a July 22 interview in Brasilia.

New Subsidies

“With potential changes in government is someone really going to invest in a whole new fleet unless it’s set for five years or 10 years?” Neeleman said.

The program will provide Azul with subsidies in cities where it was already planning flights, he said. The subsidies will help compensate for high fuel costs.

Should the regional program be a success, Azul could buy or lease additional Embraer SA (ERJ) jets, Neeleman said. Azul has already announced that it will buy 30 E195-E2 jets with an option to buy another 20. The planes won’t start being delivered until 2019.

Brazilians Making Their Mark on Fla. Tourism

By Katherine Ferrara Johnson

Brazilian tourists have been flocking to Florida in record numbers and quickly have become the largest group of overseas visitors to the Sunshine State, creating changes that are rippling across the state’s travel industry.

Brazil set a visitor record in the Sunshine State in 2013, according to figures by the U.S. Commerce Department. Almost 1.2 million Brazilians flocked to Florida, up from 971,000 in 2012.

Metro Orlando ranked as the most popular destination statewide, drawing 768,000 Brazilian visitors, according to figures from Visit Orlando. Miami was the No. 2 spot.

The influx of visitors from Brazil has Florida’s tourism industry speaking their language.

All of Orlando’s major theme parks feature Portuguese translations on their websites and print park guides and maps in the language. SeaWorld Orlando has also created an early-entry program for Brazilian groups.

“They’ve changed the language by bringing Portuguese to Florida, and now [tourism and travel professionals] have to learn how to communicate. That communication and language means trust for Brazilians,” said Robertico Croes, chair of the Department of Tourism, Events and Attractions at the Rosen College of Hospitality Management at the University of Central Florida.

The influx of Brazilian tourists has dictated changes in many tourism-related businesses. For example, Croes notes that a number restaurants are changing their hours to accommodate the later dinners, as Brazilians often prefer to have their evening dinners around 9 p.m. They are also introducing more South American-inspired menus and Brazilian-themed restaurants around Florida. Brazil’s largest chain restaurant, Giraffas, opened its first outlet in North Miami in 2011.

While Visit Orlando has been marketing in Brazil for several years, Greater Fort Lauderdale opened a marketing office there last April.

Officials say they expect to see increased tourism, thanks to a recent addition by one of the city’s sports team and the possibility of increased airlift.

Orlando City Soccer, the MLS soccer franchise expansion team that is co-owned by a Brazilian businessman, recently recruited Brazilian superstar Kaka to play on the team.

“We expect that the arrival of Kaka will boost the foreign interest and we anticipate the opportunity to leverage his presence in the country,” said Visit Orlando CEO George Aguel.

Harb said he is hopeful that expanded flight service by Azul Brazilian Airlines to Fort Lauderdale and Orlando will finally take off later this year. The airline is currently waiting for regulatory approval from Brazil and U.S. authorities.

BRICS Meet In Brazil, Create Bloc Development Bank

Leaders of the BRICS group of emerging powers – Brazil, Russia, India, China and South Africa – have decided to create their own development bank as a counterweight to what they perceive are “western-dominated” financial organizations like the US-based World Bank and International Monetary Fund.

The move came during the BRICS Summit earlier this week in Fortaleza, Brazil. The summit comes as the five countries, whose economies together represent 18 percent of the world total, are experiencing sharp slowdowns in their once fast-paced rates of growth.

The new development bank will reportedly be based in Shanghai and is expected to be functional within two years. It will be capitalized at $50 billion, a figure that could grow to $100 billion to fund infrastructure projects. The fund would also have $100 billion at its disposal to weather economic hard times.

The new development bank’s first director will reportedly be from India.

“We remain disappointed and seriously concerned with the current non-implementation of the 2010 International Monetary Fund (IMF) reforms, which negatively impacts on the IMF’s legitimacy, credibility and effectiveness,” the group said in a joint press release.

The BRICs leaders are now in the Brazilian capital of Brasilia, meeting with their counterparts from Argentina, Chile, Colombia, Ecuador, Venezuela and several other Latin American nations to discuss future economic and trade cooperation.

BRIC giant China is particularly interested in Latin America. After this week’s discussions, Chinese President Xi Jinping will stay in Brazil to launch a China-Latin America forum with the leaders of several regional countries including Cuba, Argentina, Ecuador, and Venezuela.

China is growing in influence in the region. Last year, the country, two-way trade with the region amounted to more than $261 billion.

Brazilian Airline Could be Coming to Fort Lauderdale

By Shaun Bevan, Digital Producer

 

Brazil’s third-largest air carrier could be flying into Fort Lauderdale before the end of the year.

Azul Brazilian Airlines plans to start nonstop service between Fort Lauderdale-Hollywood International Airport and Sao Paulo/Campinas airports in early December, pending federal approval, the Sun Sentinel reports.

Service to Orlando also would begin later that month as part of Azul’s planned U.S. launch.

Initially, Azul plans to operate one daily flight between the destinations, but has the flexibility to increase frequency depending on demand.

In Brazil, it operates nearly 900 daily flights to more than 100 destinations with a fleet of 141 aircraft.

For its new U.S. flights Azul plans to use a fleet of 12 wide-body Airbus aircraft — seven Airbus A330s and five A350s.

 

BofA, SocGen Slash Forecast for Brazil’s 2014 Growth

(Reuters) – Economists at Bank of America Merrill Lynch and Societe Generale on Friday slashed their forecasts for Brazil’s economic growth this year, the latest of a series of revisions highlighting mounting pessimism about Latin America’s largest economy.

BofA economists David Beker and Ana Madeira expect Brazil to grow just 0.7 percent this year, down from a previous estimate of 1.6 percent, as low business and consumer confidence hampers government efforts to jumpstart the economy.

Societe Generale’s Dev Ashish trimmed his forecast to 1.1 percent from 1.7 percent, saying that weak industrial and trade data dashed hopes of a positive second quarter.

Both revisions were published in research reports on Friday.

The consensus view for Brazil’s 2014 growth in a Reuters poll on Thursday was at 1.1 percent.

BofA also trimmed its forecast for Brazil’s 2015 growth to 1.5 percent from 2 percent.

Brazil, once one of the most dynamic of emerging economies, could be in a recession already as factories start to cut jobs, according to some analysts.

But even as the economy falters, both BofA and Societe Generale reiterated that interest rates would probably go up next year as inflation remains high. Both teams expect the benchmark Selic rate to end 2015 at 12 percent, up from 11 percent currently.

Brazil’s sluggish economy could be decisive in the upcoming October presidential elections, in which President Dilma Rousseff will seek another four-year term. Support for her has slipped in the last two weeks, and she is statistically tied with her main challenger in a possible second-round runoff, a poll released on Thursday showed. (Reporting by Silvio Cascione; Editing by Lisa Von Ahn)