BMI View: Metals consumption growth in Brazil will be driven by the automotives, construction and infrastructure sectors as spending on fixed asset investment under Brazil's Growth Acceleration Program me accelerates into 2014. We note, however, that persistent delays are likely to lead to consumption weakness in the short term. More broadly, w e foresee metals demand growth on the back of our forecast for 3. 2 % economic growth on average per annum from 201 4 to 2017 , with growth accelerating over the period.
Consumption To Exceed Production
We believe metals demand will grow, though there are various risks in the short term. After a disappointing 2012 and continued disappointing data into 2013, in which overall economic growth slowed and fixed asset investment stalled, we see activity picking up in 2014. However, while we believe government fiscal stimulus policies, namely tax cuts and spending, are likely to continue, we think such efforts will be more limited than in the past given persistent inflation and deteriorating fiscal dynamics.
We forecast inflation will average 6.2% through the end of 2013, though we expect it to ease to 5.7% in 2014. Persistent inflation has the downside risk of limiting private consumption. Furthermore, infrastructure projects still face various delays, which presents a downside risk to our metals consumption and production forecasts in 2014. Still, construction and infrastructure industry growth should remain solid, averaging 4.2% and 4.7%, respectively, from 2014 to 2017. Although automotive production will not rise as quickly, we still forecast production to grow an average of 3.5% a year during our forecast period.
| Solid Growth Outlook |
|Brazil - Real Growth Rates Across Sectors (% y-o-y)|
Brazil will consume increasingly more of its domestically produced metals given these trends, providing an opportunity for companies to increase revenues and profits in the domestic market. Production growth will not match...