As Brazil's Recession Deepens, Spending and Business Investments Continue to Drop

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“Petrobras is drilling very few wells anywhere else offshore w ith the exception of the Campos Basin,” said Michael Dyer, technical research director of IHS Energy. “Petrobras drilled 39 wells offshore in the Santos Basin in 2015 and probably a similar number will be drilled in 2016.”

Local Automotive Production and Demand

Overall, automotive sales started dropping in in Brazil in 2013, which was a record year for production. In 2014, auto sales fell 7 percent, but production was down 14 percent because Argentina light vehicle sales declined 28 percent.  In 2015, auto sales shrank a further 26 percent, but output had a slightly better performance at negative 21 percent, since Brazil exported more.

The automotive industry represents 6 to 8 percent of GDP and roughly, 25 percent of industrial production, which does not bode well since the industry has been hurt from lack of local demand. And while automotive exports represent only 5 percent of total exports and just 0.5 percent of GDP, the Argentine recovery will help the beleaguered Brazilian industry as Argentina is recovering faster than expected. “Argentina has slowly started to recover and the renewed quota system with Mexico has also been helpful for Brazil,” said Augusto Amorim, senior analyst with IHS Automotive.

"Nevertheless, all investments have been maintained so far,”Amorim said. “Daimler just opened a vehicle production plant in Brazil, and Tata is already building pre-series Land Rovers. “Additionally, the defense contracts are good for CNH Industrial, as they’ve won several contracts to build military vehicles." Fiat Chrysler Automóveis Brazil uses the same plant to build Iveco heavy trucks, along with Iveco, Fiat, Peugeot and Citroën commercial vans as well as chassis-cabs, so the extra production will benefit FCA as well.

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