A week ago, two of Brazil’s largest banks revised their 2015 forecast for the country’s GDP. Due to Petrobras, it’s now negative. Only Russia and Argentina’s economy is expected to do worse than Brazil’s within the emerging market universe. As they say in Portuguese, “parabens”.
The once proud and mighty Brazilian state controlled oil giant is hanging from a cliff. It is dragging an entire political party, and even some of the country, right along with it. Not that Brazil is a one-trick pony, by any means. This is quite the diverse economy, with a number of home grown leaders in
Still, Petrobras was the main reason behind Brazil’s influx of foreign direct investment (FDI) over the last few years. Investment banks and economists at consulting firm Tendencias believe that a reduction in investment by Petrobras will ultimately lead to a decline in economic output.
Petrobras said it will reduce to a “minimum” its investments in exploration this year, which all-told accounts for
Petrobras accounts for 10% of the country’s local corporate investment. Reductions in planned investment impact the entire supply chain, construction business and the labor market.
In addition, reductions at Petrobras might also lead to a drop in FDI as falling oil prices coupled with the ongoing investigation into financial fraud at Petrobras could turn corporate investors off to Brazil this year.
This led Itau and Bradesco, two of Brazil’s largest private lenders, to reduce their GDP targets for this year. Both expect the economy to contract by half a percent compared to 2014. Consulting firm Tendencias thinks it will be even worse, declining nearly 1%.
