If long-term forecasts are anything to go by, the world’s emerging economies are set to become increasingly dominant during the next 31 years. This includes the South American country Brazil, which is expected the become the fifth largest economy in the world and achieve a cumulative GDP of $7.540 trillion by the end of 2050.
This may come as a surprise to some, particularly with the Brazilian economy has experienced significant fluctuations of late. However, the fact remains that Brazil and similar Latin American economies are continuing to grow at a quicker and more reliable rate than those in the Asia-Pacific region, and this trend is expected to continue in the longer-term.
In this post, we’ll explore the rise of the projected rise of the Brazilian economy and the factors that will inspire this, whilst asking how this will impact on the nation’s currency.
Brazil’s Long-term Growth and the Reasons behind it
At the end of 2018, the Brazilian GDP grew by 1.2% year-on-year, whilst the most recent forecasts for 2019 are predicting the continued growth of between 2.6% and 3% overall.
These make for impressive figures, especially when you consider that the GDP growth rate averaged just 0.57% per year between 1996 and 2018, with this period including a record low of -3.90 during the first quarter of a recession-hit 2008.
Of course, there have been some setbacks recently, with the Central Bank in Brazil expected to delay a proposed hike in the base interest rate amid dwindling consumer confidence and an under-performing construction sector.
However, these are only considered to be short-term challenges, with the forthcoming release of Brazilian Consumer Confidence data expected to reveal a marginal (but temporary) decline from 100 to 99. At the same time, the labor-intensive construction sector in Brazil is also expected to improve on the back of renewed government investment in the future, and this, in turn, will help to create jobs, drive growth and promote continued regeneration.
So, whilst an underperforming construction sector has restricted Brazil’s economic growth during the last couple of years, it will play an influential role in long-term growth and lay the foundations for a far brighter future.
Short and Long-term Trends for the Brazilian Real
As with any international currency, the performance of the Brazilian economy is intrinsically linked to a number of real-time macroeconomic factors.
So, whilst the Real is likely to grow and appreciate in value steadily over time, for now, it remains subject to genuine volatility and periods of depreciation.
The aforementioned factors have certainly encouraged investors to hedge against the Brazilian Real of late, with this currency registering seven months of losses against the U.S. Dollar.
According to Oanda, this pairing even trended at record lows of 3.3155 in March, although the Real has recovered slightly and climbed by around 12.3% since the beginning of April.
However, if consumer data does slip further, traders will once again have the opportunity to hedge against the Real in favour of the U.S. Dollar and pound sterling.
These are definitely the two best currencies to support against the Real, especially with an extended Brexit delay having triggered a hike in the value of the pound.