Monday, 2 February 2009

Dandy in the Underworld: ING's Latif Foresees Brazilian Recovery in First Half, Gains in the Real

El último que ríe, ríe mejor ...

Zeina Latif has had a long career across the Brazilian financial system. She was economist for ABN Amro, for the consultancy firm Tendencias, ... and many other firms. She is now head Brazilian economist for ING Bank NV, the Dutch financial services company. In a report released today, Latif reaffirms her view that the economy should start a rebound already in in the first half of 2009 -- contrary to most analyst views in the market. She says that ''in contrast to Asian countries for example, the crisis hit while Brazil was enjoying a favourable momentum, with domestic demand growing above 9 percent on a year-on-year basis.´´ And adds, ''the country is still benefiting from having established a sound macro environment recently, meaning that this time there are no relevant domestic issues that could fuel contagion, such as the currency attack in 1998, energy shortage in 2001, presidential elections in 2002. Thus we do not expect a prolonged pause in investment.´´

But the very point that she makes in this article is the one of bigger interest. She asserts that Brazil is a closed economy, a fact that blocks the main channels for contagion to some extent. ''This fact is usually taken as a disadvantage, due to the restraints to potential growth in the long run. But at the moment it is protection against external contagion,´´ she wrote in the report. Exports represent currently 13 percent of gross domestic product and are quite diversified in terms of products and destination, opposed to some of its peers -- which rely too much on China or the U.S. or another partner. Brazilian banks have sound balance sheets, are rather low leveraged and depend much less upon external funding. Good point.

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