BRAZIL ECONOMIC FORECAST

The EUI Brazil economic forecast provides useful insights for property investors interested in investing in Brazil. Brazil is the largest market in Latin America and the fifth-most populous country in the world. In terms of GDP it ranks as the tenth-largest economy.

Brazil
Investment
Opportunities

Brazil did not remain unaffected from the global financial crisis that hit the US and Europe in late 2008. As a result of the economic crisis, Brazilian GDP decreased by 3.6% in the fourth quarter of 2008 and by 0.8% in the first quarter of 2009. According to data released by the Institute of Geography and Statistics (IBGE) the decrease in real GDP in the first quarter of 2009 was primarily due to decrease in industrial activity of 3.1%. According to a report published by Bank of America Corp., Brazil’s gross domestic product probably increased 2.2 percent in the second quarter of 2009.

According to the July 2009 forecast issued by the Economist Intelligence Unit (EIU), weak economic activity is expected to constrain real income growth in 2009, but a more vigorous growth is predicted to take place in 2010-13. EIU argues that despite high income inequalities, Brazil will become an increasingly attractive market, as the strengthening of macroeconomic stability and enhanced opportunities in a large market is likely to attract international investor interest.

EIU predicts that GDP will contract in 2009 by 1.5%, but recover in 2010 with an increase of 2.7%. Over the period 2011 to 2013 real GDP growth is predicted to average 4.1%, slightly below the average growth rate of 4.5% that was achieved during the period 2004-2008.

In terms of inflation, EIU predicts that in 2009 it will decrease to 4.4% from 5.7% in 2008. Inflation is predicted to decrease further to 3.5% in 2010 and remain between 3.5% and 3.7% over the period 2011-2013.

Real Estate Investment Mathematics!
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Internal Rate of Return(IRR)
The 3 Formulas for Modified IRR (MIRR)/Financial Management Rate of Return (FMRR)
Potential Gross Income Multiplier (PGIM)
Potential Gross Income
Effective Gross Income Multiplier
Effective Gross Income
Net Income Multiplier
Net Operating Income
Overall Capitalization Rate/Income Return
Capitalization Factor
Band-of-Investment Formula for Estimating a Market/Required Capitalization Rate
Theoretical-Approach Formula for Estimating a Market/Required Capitalization Rate
Appreciation Return
Total Return
Return on Total Capital (ROR)
Return on Equity (ROE)/Cash-on-Cash Return/Equity Dividend Rate
Before Tax Equity Cash Flow (BTECF)
Equity Investment
Loan Amount
Debt Service
Mortgage Constant
Payback Period
Breakeven Occupancy
After Tax Cash Flow (ATCF)
Taxable Income
One-Period IRR
Income Tax Payment in Association with Income Producing Property
Capital Gains
Formula for Cash Flow for Last Period of Analysis
Future Resale Price
Annual Rental Income of Occupied Multi-Tenant Property
Multi-Period Lease Rate Growth Formula with Intertemporally Variable CPI Forecast
Multi-period Lease Rate Growth Formula with Constant CPI Forecast
Present Value (PV)
Net Present Value (NPV)
Profitability Index

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Brazil Economic Forecast, July 2009