Received this latest report from our colleague in Brazil, Bernard Jeger. Brazilian economy remains healthy and a good destination for franchisors. 

BRADESCO BBI Research

Economics

Focus Survey: Contagious Optimism

"Last week's increasing optimism about the economic outlook - in response to strong international and domestic indicators - and improving financial market sentiment have spilled over into economists' forecasts.

Consensus expectations for GDP growth in 2012 and 2013 were both revised upward, with the former increasing 3bps to 3.30% and the latter increasing 5bps to 4.3%, reversing some of the previous week's decline.

As the Central Bank continued to signal that interest rates will decline in 2012, consensus kept Selic interest rate forecasts unchanged at 9.5%. Perhaps surprisingly, despite a stronger economic outlook and expected loosening of monetary policy, inflation forecasts changed little: the IPCA is projected to reach 5.29% (up 1bp) at the end of this year, and 5.0% (no change) at the end of 2013. This potentially reflects international commodity prices and domestic price surveys remaining rather well behaved, suggesting that inflation should stay relatively contained over the coming month.

However, economists further increased their forecasts for the Selic interest rate in 2013 (up 37bps to 10.75%), probably expecting that the stronger growth outlook and lower interest rates in the near term will result in the need for a more aggressive tightening cycle further down the road.

The relatively benign view on inflation is perhaps also partly explained by the BRL's recent sharp appreciation in the spot market, which seems to have impacted the near-term forecast for FX. Consensus expectations for the BRL at year-end 2012 reached the strongest level in a month, coming in at R$1.75/US$1 (from 1.80), although forecasts for year-end 2013 remained unchanged at R$1.75/US$1."