HSBC Global Connections

Trade Forecast Update: Brazil

February 2012
Forecast exploring the future of world trade and the opportunities for international businesses
World trade to grow by 86% in the next 15 years (2012-2026) International trade growth will accelerate from 2014 Companies to increase trade activity by 4.70% annually to achieve projected growth Fastest growing emerging sectors support trade infrastructure and the transportation of goods around the world Brazil's trade growth from 2012 to 2026 will be 162.79% Brazils companies to increase trade activity annually by 6.19% over the next 15 years Growth over the next 15 years will be fuelled by Brazils export of unwrought, powder form gold to Canada, which is forecast to grow at an annualised rate of 20.10% Trade overview As the world continues to face well-documented economic challenges, the Trade Forecast suggests grounds for optimism for international businesses. Despite the current climate the overall trend for international trade is positive with growth acceleration sooner than expected from 2014, rather than 2015. After 2014 the global economy ends a period of slow growth and contraction and sees an upturn in trade in line with GDP forecasts. Over the next five years it is forecast that world trade will grow at an annualised rate of 3.78% (see below graph for year-on-year predictions), due primarily to the expectation of an earlier recovery of the overall global economy. In the period 2017-2021, the Forecast predicts even more rapid annualised growth at 6.23%, as world demand for traded goods recovers its dynamism. As a result world trade is predicted to grow by 86.00% in the next 15 years, taking total trade activity in that year to $53.8 trillion. Brazils trade will increase at a much faster rate than is average for the world to 2026, and is expected to be 162.79%. This high level of growth accelerates after 2015 in both Latin America and Asia Pacific. Brazil will play a major role in driving this as a route into the Latin America region and as its trade with Asia and Europe grows. Brazils export trade is dominated by agricultural commodities, cars and infrastructural commodities and on the import side by commodities such as oil and iron ore, alongside a growing presence in the manufacturing sector (particularly automobiles, turbo engines and automotive components). Brazils trade outlook Brazils trade index, based to 2011, will increase at a much faster rate than is average for the world. Brazils index of tra de growth is currently 4.76% above the index of world trade growth. By 2016 it will be 26.82% above and by 2026 growing at some 67.22% above world trade averages. Growing trade within Latin America is an opportunity for Brazil: as its largest economy, Brazils it is central to the emergence of supply chains and trade corridors as well as to the development of infrastructure and trade growth outside of the region.
Annual growth rates year on year, Brazil and world 2012-2026

300.00

250.00

Annualised, indexed at 2011

200.00

150.00

100.00

50.00

0.00
Brazil World

2012 111.62 106.86

2013 121.72 111.21

2014 130.38 113.93

2015 139.31 117.46

2016 147.19 120.37

2017 154.72 125.35

2018 167.81 138.88

2019 188.48 153.56

2020 197.18 157.11

2021 212.52 162.80

2022 222.77 168.85

2023 233.64 176.88

2024 244.64 185.32

2025 255.58 192.64

2026 266.47 199.25

Alan Keir, Group Managing Director and Global Head, HSBC Commercial Banking:
"Where once businesses followed economic investment, now, forward-thinking companies lead, taking matters into their own hands and making business happen. Whether that's taking advantage of shorter-term growth in international trade, which despite economic uncertainty sits at $1trillion a year, or by creating new supply chains that open up trade corridors, businesses are connecting themselves to future opportunities. The reality is that growth opportunities lie internationally. The companies that succeed will be planning for that today."

Trade corridors and trends Brazils largest export partner is Argentina with export trade forecast to grow over the next five years at an annualised rat e of 6.93%. An emerging automotive sector in Argentina dominates exports of car components which the forecast predicts will increase by 10.68% annually to 2016. A large amount of trade between Brazil and the USA (the second largest export partner) is in oil: Brazil exports of crude oil here are forecast to increase by 7.53% annually to 2016. Growth in exports of coffee to the USA is also expected to be substantial at an annualised rate over the same period of 8.42%. The Netherlands is Brazils fourth largest export partner with growth driven by exports of Soya cake and wood pulp for paper. Brazils key import partner s are the USA, China and Argentina and the Trade Forecast is predicting substantial annualised growth in imports from each of these countries by 8.81%, 11.55% and 7.56% respectively to 2016. The USA will increase its imports of refined oil over the next five years at an annualised rate of 15.14%. China will increase its imports of a selection of consumer electronics. There is a growing trade corridor in the automotive sector between Argentina and Brazil which accounts for a substantial share of the increase in imports from Argentina. Emerging import partners include Mexico, forecast to increase its imports of cars over the next five years by 13.23%, Vietnam, Turkey, Colombia, Venezuela and Uruguay.
Brazils Emerging Growth Importers and Exporters (2012-2016) Brazils Largest (2012) Export Partners Ordered by Value Argentina USA China Netherlands Germany Japan Venezuela Russia United Kingdom Chile CAGR (2012) 6.93% 1.16% 8.29% 8.22% 6.95% 6.96% 7.04% 5.71% 9.52% 3.71% Emerging Growth Export Partners India Bahrain Vietnam Indonesia Bangladesh Switzerland Malaysia Saudi Arabia UAE South Korea % 14.23% 12.91% 12.74% 12.01% 11.15% 10.77% 10.20% 9.82% 9.70% 9.62% Brazils Largest (2012) Import Partners Ordered by Value USA China Argentina Germany South Korea Japan Italy France Chile India CAGR (2012) 8.81% 11.55% 7.56% 8.48% 12.08% 9.21% 9.21% 7.90% 7.24% 10.95% Emerging Growth Import Partners Vietnam Turkey Colombia Mexico South Korea Austria Venezuela China Uruguay India % 14.78% 13.82% 13.28% 12.27% 12.08% 11.84% 11.69% 11.55% 11.32% 10.95%

N.B. Emerging Growth Import and Export Partners are trade partners that are growing most quickly over the period, albeit potentially from a small base.

Sector watch The table below shows Brazils fastest growing export and import sectors by partner:
Brazils Fastest Growing Export and Import Sectors by Partner (2012-2016) Export Sector Export Partner CAGR (2012-16) 17.76% 11.09% 11.04% 10.68% 10.35% 9.36% 9.21% 8.80% 8.67% 8.43% Import Sector Import Partner CAGR (2012-16) 16.39% 15.14% 14.34% 13.57% 13.23% 11.17% 10.91% 10.72% 10.33% 10.04%

Solid cane or beet sugar and chemically pure sucrose Chemical wood pulp, soda or sulphate, not dissolving Petroleum oils, oils bituminous minerals, crude Parts and accessories for motor vehicles Iron ores and concentrates, roasted iron pyrites Soya-bean oil-cake and other solid residues Meat, edible offal of domestic poultry Iron ores and concentrates, roasted iron pyrites Iron ores and concentrates, roasted iron pyrites Chemical wood pulp, soda or sulphate, not dissolving

India China China Argentina South Korea Netherlands Saudi Arabia Germany Japan Netherlands

Motor vehicles for transport of persons (except buses) Oils petroleum, bituminous, distillates, except crude Electric apparatus for line telephony, telegraphy Oils petroleum, bituminous, distillates, except crude Motor vehicles for transport of persons (except buses) Parts, accessories, except covers, for office machines Motor vehicles for the transport of goods Motor vehicles for transport of persons (except buses) Automatic data processing machines (computers) Coal, briquettes, ovoid etc made from coal

South Korea USA China Algeria Mexico China Argentina Argentina China USA

N.B. Fastest growing import and export sectors by partner are developed from the top 50 export and import partners and are selected alongside the trade sectors that constituted values of above $100 million at the end of 2010. The top ten fastest growing partners by sector were selected for this table.

Sector opportunities Agricultural commodities: Despite its emerging manufacturing sector and progress up the international trade value chain the dominant feature of Brazils trade is agricultural commodities. Exports of soya cake to the Netherlands are forecast to grow by 9.36% while exports of soya bean to Spain will increase by 6.96%, all annualised to 2016. Exports to India of solid sugar cane and sugar beet will increase by 17.76%, exports of coffee to the US and Germany by 8.42% and 7.53% and exports of meat, offal and poultry to Saudi Arabia by 9.21% all annualised to 2016. These countries emerge as growing corridors, but the bulk of Brazils trade in this sector is within Latin America. As the sector grows beyond the region agricultural businesses need to keep pace with change and develop infrastructures that support international trade. Businesses will need to increase their international activities by between 8.37% and 10.91% depending on sector to take advantage of the opportunities presented. Automotive industry: Brazils automotive sector is established around Sao Paolo and has been fully integrated into the German automotive supply chain since the 1970s. Imports of cars and car components are beginning to grow as manufacturers take advantage of the cluster of automotive industry expertise that has developed in Brazil. For example car component imports generally will increase annually by 5.50% to 2016. Brazils exports of cars will increase by 4.13% annually to 2016; as cars are among Brazils largest export sectors, this is a substantial amount. Growth in this sector represents a real opportunity for businesses to take advantage of established distribution and supply chains by working with large, global suppliers. They will need to grow their international activities at an annualised rate of at least 4.13% annually over the next five years to keep pace. Oil and commodities: Oil trade is vital to Brazils trade flows and will become more important as its oil supply becomes more established. The Trade Forecast predicts that crude oil exports to China will increase by 11.04% and this will drive the overall increase in exports of crude oil annually by 9.22% to 2016. Brazil imports much of its refined oil and these imports will increase alongside as Brazils growth. Two emerging import partners in this sector are the USA and Algeria. Alongside this is growth in imports of commodities such as coal from the USA and refined copper from Chile which will fuel the development of infrastructures to support the growing export trade in oil and commodity infrastructures. Exports and imports are not limited to Latin America and, as the world grows, so too will demand for oil and commodities. Businesses in mining and construction engineering have huge opportunities to build this sector over the next five years and will need to grow their international activities rapidly in order to take advantage of this.
HSBC Trade Connections Trade Forecast The Trade Forecast predicts how trade is going to develop over the next five, 10 and 15 years. It forecasts overall trade growth (exports, imports and total trade) globally, in global regions, and individual countries. Spanning 37 countries, it covers the top 10 sectors for exports and imports for each of these. The forecast has a unique approach to understanding the drivers of trade from a business perspective, informed by: trade trends, macroeconomic and market influences trade (for example GDP, oil prices, inflation, foreign direct investment), and business environment influences on trade (including regulation, demographics, access to capital and finance). The research has been commissioned by HSBC and undertaken by Delta Economics. The economic and business narratives stem from a broader documentary search that includes material from National Statistical Offices, the World Bank and International Monetary Fund, economic blogs, the Economist Intelligence Unit, Bloomberg, the Financial Times and other professional and financial services news websites. About HSBC Commercial Banking Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world. HSBC is one of the world's most international commercial banks with over three million customers in more than 60 markets.