Economic development and outlook in Brazil
Article 4 minute read

Economic development and outlook in Brazil

16 April 2018

Brazil’s economy is emerging from a lengthy recession with the first signs of rejuvenation - repositioning the largest economy in Latin America as a land of opportunity for business expansion.

Like green shoots on a branch after a long cold winter, Brazil’s economy is emerging from a lengthy recession with the first signs of rejuvenation.

Figures have confirmed that the economy grew by 1% last year, its first year of expansion since 2014. With growth initially driven by agriculture, the recovery now appears to be increasingly broad-based. As the largest economy in Latin America, the impact of a 1% improvement is sizeable.

Year-on-year growth is also a significant turning point. Brazil’s current account balance came in at a surplus of USD 283 million in February, a notable improvement from the USD 945 million deficit recorded in February 2017.

Consumer confidence is also on the increase, as unemployment gradually falls, and inflation has fallen to below the central bank’s target. The fall in inflation from almost 11% year-on-year to below 3% has raised real incomes and seen a lowering of interest rates, which will support a recovery of investment. Moreover, in February, business confidence moved into optimistic territory for the first time since mid-2013, and the manufacturing PMI rose on the back of solid domestic demand and job creation.

Brazil is eighth in the world for the size of its Global Domestic Product (GDP), which was USD 2.08 trillion in 2017. The International Monetary Fund expects Brazil’s GDP to grow by 1.5% this year, as the economy steadies itself within a relatively stable global economy and trading situation. Brazil remains unfazed by U.S. protectionist policies such as President Trump’s recent decision to impose a 25% tariff on steel imports and 10% on aluminium, from which he excluded Brazil. Relations between the two countries remain buoyant, unlike some other markets in Latin America.

Opportunity

The current economic recovery – albeit slow and steady – positions Brazil as a land of opportunity for business expansion. Foreign investment, particularly in infrastructure and utilities by the Chinese, is setting up Brazil for long-term growth.

Political uncertainty over this year’s elections in October doesn’t hamper the momentum for stamping out corruption and making it easier to do business in Brazil – both of which objectives are cultural and state commitments, rather than tactics by individual political parties.

A determined approach

Brazil was ranked 125 among 190 economies in the ease of doing business, according to the 2017 World Bank annual ratings. But the country’s commitment to fostering openness and greater transparency in business is a clear sign that measures are in hand to improve the situation.

New digital tools include eSocial, the Brazilian government’s project to unify the sending of employer and employee data, which is widening its scope this year. It’s a digital bookkeeping tax, social security and labour obligations tool; a single system to eliminate sending separate reporting to Social Security, the Internal Revenue Service and Brazil’s Ministry of Labour and Employment. Until this year, use of the eSocial portal was optional and it was used mostly by domestic employers. From January 2018, eSocial now applies to all companies with revenues greater than R $78m in 2016. For all other companies, eSocial becomes mandatory from July 2018.

Adapting to the new digital processes can be facilitated by TMF Group, local experts in business support services with specialised professionals who can ensure that businesses make good use of the advantages that eSocial can bring from an organisational, cultural, and business standpoint.

TMF Group is also well-placed to partner companies at every stage of establishing and growing a business in Brazil. Business rules in Brazil are complex and require clear and accurate navigation. To operate locally, companies must be aware of federal, state, and municipal taxes - which can be more complex than those in other countries in the region. With more than 5000 municipalities, 27 states and one Federation – each of which has its own regulations and taxes – a clear understanding of the system is vital. Companies also need to pay special attention to the employee hiring process, as complex labour laws may be difficult to fathom for foreign companies. So, to succeed in Brazil, it is essential to have a local partner who has experience in operating within the country’s complex business framework.

TMF Group in Brazil

With three offices in Brazil - two in São Paulo and one in Rio de Janeiro - TMF Brazil employs over 700 professionals supporting more than 400 clients from a wide variety of business and industrial sectors.

It is the largest country operation in TMF Group’s unique global network of offices in 84 countries, providing a wide range of expertise and skills in accounting, tax, treasury, payroll, structured finance, trust, and corporate services, corporate secretarial, compliance and information technology solutions.

In anticipation of Brazil’s economic recovery and its potential for business growth, TMF Brazil is currently investing in a new specialist financial services department, together with a state-of-the-art SAP technology system to support its growing client base with a market-leading digital platform.

For further information on how we can help to support your business plans in Brazil, please contact us.

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Written by

Marco Sottovia

Sub-Regional Director Brazil, Barueri / São Paulo

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