Can the Brazil Budget Deficit Benefit U.S. Importers?

Brazil Budget Gap

Brazil’s budget gap grew to its widest in four years during 2013. According to the WSJ, the deficit widened to 3.28% of GDP in 2013 compared to 2.48%.

Brazil is set to only grow 2% during 2014 compared to 7.5% during 2010.

Why the Budget Gap?

• Increase in government spending (ie: government salaries)

• Major inflation• Local currency getting weaker• Brazilian Central Bank has been forced

to hike interest rates to cool down Brazilian consumer demand

• Global credit rating companies alarmed by increase in government spending and are threatening to lower Brazil’s credit rating (which would bring higher interest rate payments on debt and drive up the budget deficit further).

Why the Budget Gap?

How Can Importers Leverage?Good opportunity for U.S. importers to start looking to Brazil and other emerging markets such as Argentina and Turkey as sourcing origins since China’s currency continues an upward trend.Now is an opportune time to look at countries with cheaper currencies for product sourcing and to negotiate better prices overall with the traditional export economies, particularly in Asia.

For U.S. importers, the currency crisis brewing in many emerging economies will bring cheaper products into the U.S. as many exporters will be lowering prices further to compete for U.S. importer dollars.

What happens with freight prices is yet to be seen, but if the past is an indicator, it will increase since the U.S. demand for imported goods will be higher from various origins creating tightening capacity.

Should you have any questions about your supply chain, please call LILLY + Associates International at 305-513-9540 or visit our website at www.shiplilly.com.

With offices in Asia, United States, Latin America and the Caribbean, LILLY has helped their transportation customers have the most efficient supply chains possible.