Brazil GDP Better than Expected

This morning, better-than-expected numbers for the Brazilian GDP were released. As we have been saying for weeks, Brazil has been less affected by the global economic crisis and should recover earlier than elsewhere as domestic conditions are improving, mainly due to a more relaxed monetary policy.

Brazilian GDP for the first quarter 2009 was down -0.8% from the previous quarter and -1.8% from the same quarter 2008. The average expectation of the market was -2.1% from the previous quarter and -3.2% from the first quarter 2008.

We believe these numbers will reinforce the view that emerging markets in general, and Brazil in particular, will outperform more developed economies. According to the weekly focus survey conducted by the Brazilian Central Bank among local banks, brokers and consulting companies, 2009 Brazilian GDP was expected to fall -0.71% before the numbers today.

We believe next week there will be an adjustment up to somewhere close to -0.50%. It seems that the second half of 2009 in Brazil will be much better, and 2010 will be a “normal” year.

Tomorrow evening, the Brazilian Central Bank will announce a new cut for domestic interest rates. For sure the GDP number raises some concern over the aggressiveness of the cuts in the following months. We believe tomorrow the cut will be of 50 basis points to 9.75%, and that by the end of the year Brazilian rates will be below 9%.

We continue to recommend stocks focused in the Brazilian domestic market. We like Vivo (VIV - Snapshot Report), Grupo Ultra (UGP - Analyst Report), Cemig (CIG - Analyst Report) and Copel (ELP - Analyst Report).