What are the main industries in Brazil

Emerging Market Economies: Brazil

The Brazilian economy at a glance

Brazil is the largest economy in South America and ranks eighth in the world according to gross domestic product (GDP).1 However, it is classified as an emerging market or emerging market because it is still in the transition from "developing" to "developed". Brazil is part of a group of emerging economies known as BRICS. Other countries included are Russia, India, China and the Republic of South Africa.

Up until 2010, analysts were impressed with the growth of the Brazilian economy, but in recent years there have been some issues that have made traders concerned about the economic future of Brazil. These problems include, for example, former President Dilma Rousseff, who was convicted in August 2016, and sanctions against some of the leading companies in Brazil.

The Brazilian economy is expected to continue to grow sustainably as forms of government seek to limit public spending, stimulate infrastructure projects and remove barriers to foreign investment. The signs of this growth are beginning to show. Brazil's GDP rose 1% to $ 3.34 trillion in 2017, giving the economy a GDP per capita of $ 15,600.

What are the largest industries in Brazil?

Brazil's dominant industries have driven GDP growth. These are:

  1. The service industrywhich accounts for most of employment and nearly 71% of GDP. It is made up of companies divided into sub-sectors such as hospitality, finance, retail, and professional services.
  2. The manufacturing industry contributes the second largest part of Brazil's GDP, which thrives because of its diversity - Brazilian companies produce everything from airplanes and chemicals to food and clothing.
  3. The agricultural economy only accounts for 5.6% of GDP, but it is very important because raw materials are Brazil's largest exports. Brazil is the world's leading manufacturer of soybeans, coffee, cocoa and sugar. Furthermore, it is even one of the few countries that is self-sufficient in terms of oil.

The history of the Brazilian economy

From the colonial era to the present, the Brazilian economy was characterized by cycles of boom and depression. At the time of independence from the Portuguese occupiers in 1822, Brazil had one of the least productive economies in the world. However, towards the end of the 19th century, the economy was saved by a coffee boom - the increase in coffee production was so successful that Brazil became dependent on the commodity.

From 1964 to 1985, Brazil was ruled by a military dictatorship that focused on maximizing growth without taking into account the social inequalities that prevailed in the country. The election of the first democratic government in 1985 was considered the first social milestone, but initially little was done for the economy. Inflation continued to rise and peaked at 2950% in 1990.

Eventually the government privatized dozens of industries, which led to a surge in foreign investment. However, in Brazil, the managed economy system - which merged free market capitalism with state-owned companies - has been scrutinized for the possibility of government corruption.

In 1994 the Plano Real was introduced to introduce a modern Brazilian currency under the name Real. It was fixed at an exchange rate of 1 real to 1 US dollar and controlled by the Brazilian central bank. In 1999 it was decided to change the exchange rate, after which the currency was devalued to a ratio of 2 reals to 1 US dollar. Although the real lost, the Brazilian economy was able to outgrow the development of other BRICS countries, increasing the demand for raw materials.

Despite the global financial crisis of 2008, Brazil remained one of the world's fastest growing economies, with average GDP growth of 5% between 2000 and 2012. However, growth soon slowed and the country fell into recession in mid-2014 due to devaluation of raw material prices. The two-year economic slump resulted in more than 1.5 million jobs lost and growing dissatisfaction on the part of the government.

The future of the Brazilian economy

The growth of the Brazilian economy has never stopped completely. But the slow recovery in GDP was a cause for concern for traders and investors, and even caused the Brazilian real to drop to 4 reals per US dollar in August 2018.

Although some analysts have forecast that the real could decline further against the US dollar, the Brazilian central bank and the Treasury Department continued to take steps to reassure investors and convince them that despite the difficult political climate in Brazil, there is no currency crisis gives.

When the International Monetary Fund (IMF) published its world economic outlook for 2018 and 2019, it renewed investor confidence in Brazil's economic growth. The IMF forecast that the economic outlook for Brazil would be GDP growth of 2.3% in 2018 and further growth of 2.5% in 2019.2

How to trade with the Brazilian economy

Using CFD financial derivatives, you can go long or short on a range of Brazilian assets. This also includes the Brazilian currency and the stock market. This means that you can trade in Brazilian slowdowns as well as periods of growth.

Trading in the Brazilian currency

A popular way to gain exposure to the Brazilian economy is through the Brazilian currency real (BRL). Because forex trading is done in pairs, the most common way to trade the real is with the US dollar in the USD / BRL pair. This shows how many BRL it takes to buy one unit of US dollars.

If you are optimistic about the future of the Brazilian economy and believe that the real will rise against the US dollar, you would be bearish on the USD / BRL pair. If you are more concerned about the growth of the Brazilian economy, with the opposite opinion, you would buy the USD / BRL pair with the expectation that the price will rise.

Trading on the Brazilian Stock Exchange

Almost 450 companies with a market capitalization of more than 771.08 billion dollars are listed on the Brazilian stock exchange "B3". It can be dated back to 1890, when it was still known as the São Paolo Stock Exchange or under the abbreviation "Bovespa". Since then, two name changes have been made. The first took place in May 2008 when they merged with the Brazilian trading and futures exchange to form BM & FBOVESPA and the second in March 2017 when it merged with CETIP to form B3. However, the exchange is still referred to as Bovespa.

Traders can get involved in the Brazilian economy by speculating on the IBOVESPA benchmark index price, which tracks the performance of the 60 most liquid stocks. The companies included in the Bovespa index cover around 80% of all transactions on the stock exchange and around 70% of market capitalization.

Alternatively, traders can also take a position on the stock exchange, referring to the future price of individual stocks. The largest companies listed on Bovespa include financial companies such as Santander Brazil and Banco Bradesco, as well as manufacturing giants such as the aerospace group Embraer and the beverage brewery company Ambev.

Brazil is still experiencing growing pains, particularly around its political outlook and socioeconomic issues, which means traders should be careful before opening a position on Brazilian assets. It is also important to be aware of any news and publications that could affect the Brazilian economy. Therefore, you need to strive to implement an appropriate risk management strategy to protect yourself from negative market movements.

Visit our economic calendar for the data on the most important macroeconomic data of Brazil such as GDP and employment figures.

1IMF, 2018
2IMF, 2018