Brazil car export rise driven by Latin America growth

Brazil car export rise driven by Latin America growth

Region emerging from 3-year slowdown ahead of series of presidential elections

Pedro Jaime Mejía, who manages one of Volkswagen’s top dealerships in Bogotá, cannot get enough Brazilian-made cars. More than 60 per cent of the German-branded cars sold in Colombia are made in Brazil.

“Brazil is exporting more cars, with better prices and better quality,” he says. “There are lot of Brazilian cars here.”

A surge in Brazilian automotive exports suggests South America is accelerating out of an almost three-year slowdown brought about by the collapse of the commodity boom, brightening the region’s $4tn economy ahead of a series of presidential elections this year.

Brazil’s car industry had its biggest month for exports in November, with the industry shipping 700,000 units overseas in the first 11 months of 2017 — especially to neighbouring countries, up53 per cent on a year earlier, according to Anfavea, the national automotive producers’ association.

“We should close the year at 750,000 exported vehicles, a historic record,” says Antonio Megale, the association’s president.

The country’s automotive industry has traditionally been domestically focused due to its vast internal market, with a quality that rarely met global standards. Yet recently, as Latin America’s largest economy battled a brutal recession, its exports became more competitive.

“Brazil started to pay more attention to other countries,” Mr Mejía says. Brazil is now an exporter of cars to Argentina and Colombia, the region’s second- and third-largest economies, says João Momesso, head of trade and marketing for Maersk Line for the east coast of South America.

“Now pretty much one out of three cars that are being produced in Brazil are being exported,” he says.

The boom comes as Brazil’s economic growth is forecast by the IMF to double to 1.5 per cent in 2018, while Colombia’s is predicted to expand almost 3 per cent. “The economic recovery in Latin America is gaining momentum,” wrote Neil Shearing, chief emerging markets economist at Capital Economics.

That excludes Venezuela, which is in the grip of hyperinflation, predicted to default on its international bonds, and forecast to shrink another 6 per cent in 2018.

The country is due to hold presidential elections in 2018, although a date has not been set. Even amid stubbornly high inflation, Argentina’s return to growth after six years of stagnation led to a surge in imports from Brazil, its main trading partner, chiefly in the automobile sector.

Brazil’s exports to Argentina rose by 30.5 per cent year on year last November, compared with an overall rise in exports of 2.9 per cent. Søren Toft, chief operating officer of Maersk Line, said the world’s largest shipping company was investing in Latin American growth with its $4bn acquisition of rival Hamburg Süd: “It is super-positive that we are starting to see growth, especially in these vast markets.”

Cuts in interest rates by central banks are also helping support domestic consumption, particularly in Brazil. A collapse in commodity prices hit the region hard in 2014, yet the price of oil, copper and other commodities has rebounded slightly.

But risks abound. Brazil, Colombia, Venezuela and Paraguay all hold presidential elections this year. Peru came close to impeaching its free-market president, who still faces congressional opposition. Colombia’s election in May is widely seen as a referendum on the country’s peace deal. Brazilians, meanwhile, will go to the polls in an angry mood soured by corruption scandals.

While Mauricio Macri in Argentina managed to pass a pension reform in December despite violent protests, Michel Temer, Brazil’s unpopular president, is struggling to push forward a contentious social security overhaul.

Economists believe the reform is crucial to the country’s long-term prosperity.  “The agenda of fiscal adjustment, a better management of monetary policy, and a series of reforms allowed for the recovery of the economy,” says Marcos Lisboa at São Paulo’s Insper business school.

“There is still uncertainty over the continuation of the reform agenda. There are too many uncertainties to make long-term bets.”

For Paulo César de Souza e Silva, chief executive of Embraer, the Brazilian jet maker, “the situation in Brazil is complicated”. He recently told journalists it was not yet time to crack open the champagne in the country. “We lost 8 per cent of our gross domestic product in three years,” he says. “I don’t think we will return to where we were until at least 2022.”

 

Andres Schipani & Benedict Mander

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