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LatAm Brasil Local Market Overview

Brazil ended 2013 with a GDP growth of 2.3%, the second worst economic performance among the six countries of Latin America in this year’s ranking, putting it ahead only of Mexico. Brazil’s performance reflects the difficulties stemming from a scenario dominated by the international financial crisis and the increased volatility of the macroeconomic variables, including exchange and interest rates.

2013 saw a fluctuation in activity levels, combining quarters of stability, with decrease and increase in GDP.

These fluctuations are strongly associated with industrial production, which saw variations in output levels due to stock adjustments caused by changes in monetary and fiscal policies, and more restricted access to consumer credit.

The unemployment rate in 2013 fell to an average 5.4%, the lowest rate since 2003, when it first began to be measured. However, this decrease was not due to job creation but related to lower demand for employment in December. Consumption expenditure of households grew by 2.3% in 2013, the 10th consecutive year of growth in this indicator, but the lowest growth since 2003. This growth was supported last year by rising wages and the supply of credit, but constrained by the increase in interest rates. As a consequence, the inflation rate in 2013 was 5.91%, below the government’s target range.

Despite the Brazilian economy becoming more diverse in recent years, the country is still dependent on exports of iron ore, soybeans, other agricultural products and raw materials – all of which have been affected by the slowdown in the world economy, particularly in China.

The protests on the streets in Brazil, instigated in 2012 across the country with the population asking for better public services (transportation, education, health, among others), were strengthened in 2013. The protest in June became known as “the 20 cents revolution”, when people across the country contested the increases in public transportation fares in the main cities. These protests grew to include other issues such as the high corruption in the government and police brutality used against some demonstrators.

The expectations placed upon the country as hosts of World Cup 2014 were partially achieved with some investments in infrastructure, stadia and transportation systems. The World Cup itself was successful (except for us – Brazil 1 x 7 Germany!), without any of the previously anticipated problems, and visitor perceptions were positive.

Brands of consumer goods from the beer and food segments, such as Skol, Brahma and Sadia, benefited from the rise in purchasing power of the growing middle class. Retail brands such as Ipiranga, Casas Bahia, Lojas Americanas and Pão de Açúcar, increased brand values substantially, with a clear brand positioning.

Financial Institutions suffered a big drop in brand value due to the decrease of banking spreads, increased intervention by the Brazilian Government and economic growth as a whole. Banco do Brasil decreased 70% in brand value.

In the B2B segment, Vale suffered from the decrease in commodities prices, a reflection of the slowdown of China’s economy. Petrobras also decreased in 44%, partly due to government intervention and low cash flow generation.

Finally, in the Services segment, Telecom brands are facing some problems in generating positive brand perception in the face of the convergence value proposition. Airlines’ brand evaluation has been negatively impacted by infrastructure problems, even though the World Cup has brought some improvements to airports.

Roberto de Napoli

Operations Director, Millward Brown Vermeer