Despite the downturn in economic activity, Brazil maintains the creation of formal jobs and low unemployment. The latest edition of the newsletter “Economia Brasileira em Perspectiva” (“The Brazilian Economy in Perspective”), released on Friday (December 9) by the Ministry of Finance estimates that domestic demand will continue to be the main driver for economic growth in Brazil in 2012, situated at a level of 5.6% of GDP, against 4.7% forecast for this year. Expansion of the economy next year will be led by investment, which will grow more than household consumption. This situation will contribute to sustained growth in the country’s productive capacity.

The publication emphasizes the strength of the Brazilian economy in contrast to current volatility in the economies of developed countries.

In the evaluation of the Secretariat of Economic Policy (SPE), Brazil holds third position in the ranking of the economies most often cited as attractive destinations for foreign direct investment (FDI) after China and India. The research was undertaken by UNCTAD (United Nations Conference on Trade and Development). “The deepening financial crisis in Europe increases risk aversion and induces investors to take more conservative positions. However, inflows of long-term resources into Brazil, such as FDI, remains strong”, according to the publication.

In the third quarter of this year the inflow of investment reached US$ 17.9 billion, more than sufficient to finance the deficit of US$ 10.6 billion in current account transactions. FDI inflow is expected to reach US$ 60 billion for the year according to the `Focus´ market report published by the Central Bank (November). According to the Secretariat of Economic Policy foreign investment should continue strong in 2012, despite the global crisis. Favorable expectations for the Brazilian economy for the coming years and continued improvement through to the planning horizon contribute to this appeal.

The SPE cited the improvement in the country’s position with rating agencies. This year, in the midst of the crisis, Fitch, Moody’s and Standard & Poor’s reclassified Brazil’s grade upwards.

Investment

According to the bulletin, between 2011 and 2014 there will be substantial growth in investment in key infrastructure sectors in Brazil, such as electricity, telecommunications, sanitation, railways and ports. BNDES estimates that these segments will grow 54% in the period.

There should also be considerable growth in investment by industry in the coming years (60%), especially in the Oil & Gas and Chemicals sectors.

On the other hand, the bulletin confirms a slowdown in industrial production for September when compared with August, with a 2% reduction after seasonal adjustments, and 1.6% down compared to September 2010. However, industrial output registered an accumulated 1.6% expansion in the last 12 months.

The Brazilian economy showed a retraction – according to the Central Bank Indicator of Economic Activity (IBC-BR), economic activity grew by only 0.2% in September 2011 compared with August of the same year. In the third quarter of 2011, IBC-BR showed a decrease of 0.3% over the previous quarter.

Employment

Despite the contraction in activity, the SPE considers that the rate of formalization of employment continues to grow, reaching historical values in 2011 (53.5% in October). Among the factors contributing to this performance are increased productivity, higher levels of formal education, simplification of the tax structure and monitoring by government agencies. Additionally the unemployment rate has been in single figures since 2007. Since early 2011 the rate has remained around 6%. In October the unemployment rate registered 5.8%, the lowest percentage for the month since the reformulation of employment research in 2002.

Inflation

According to the SPE analysis, inflation is beginning to fall in Brazil. In the accumulated 12 month period to November inflation reached 6.64%, compared to 6.97% in October, according to IBGE reports. The department estimates that the reduction in price rises should continue in the coming months, pushing inflation toward the 2012 target (4.5%).