South American Real Estate News

Brazil To Attract Capital Over 8 Years -Itau

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Brazil to attract more private-sector investments over the next eight years, compensating in part for lack of domestic savings, but there’s unlikely to be a major appreciation of the Brazilian currency, according to economists at Brazil’s Itau Unibanco Holdings SA (ITUB, ITUB4.BR).

As capital flows into Brazil–seeking investment opportunities as well as attracted by the opportunities related to the coming World Cup and Olympic Games and the development of the major offshore oilfields–there’s likely to be more pressure on the Brazilian real to appreciate.

But in a report that looks at Brazil’s position as far ahead as 2020, Itau Unibanco’s chief economist, Ilan Goldfajn, sees the country’s currency at 1.92 per dollar at the end of the decade.

“We suspect that there is no political room for a sizeable additional appreciation… A more appreciated real would reduce the competitiveness of the manufactured goods even further, which doesn’t seem yet to be choice of the country,” wrote Goldfajn in the report.

He sees Brazil’s interest rates probably falling further, but converging only partially to international levels. “We believe that, at the end of the decade, the real interest rates will be around 3.5%.”

With Brazil’s benchmark rate at 9.75%, and inflation running at around 5.85%, real interest rates are currently 3.9%.

Goldfajn said that Brazil has a low level of savings and high needs and opportunities for investments in commodities, infrastructure, consumer goods and services, making the country more dependent on foreign investments.

“In the next 10 years (or while the investment boom lasts), the difference will have to be covered by the external savings. This means a permanent current account deficit, financed by the healthy capital flows (direct investment, for example), what will keep the exchange rate appreciated,” Goldfajn said.

For the economist, the investment in relation to the GDP in Brazil will grow from 19% in 2011 to around 22% at the end of the decade.

Goldfajn forecasts that Brazil’s gross domestic product will expand 3.5% in 2012 and 5.1% in 2013. From 2014, the Brazilian economy would expand at the potential GDP rate of around 4%. He says a faster rate of growth would likely put pressure on the external accounts, the exchange rate and/or inflation.

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