Forecast data modelled by Oxford Economics,

based on HSBC Global Research macro data.

*The table considers goods exports between
the 25 countries in the sample.
HSBC Global Connections Report
March 2014
Brazils economy is expected
to continue slowing this year
and into 2015. Domestic
demand will suffer from
tighter credit conditions,
stubborn ination and reduced
willingness to invest amid
an uncertain economic
environment. Onthe other
hand, exports should
eventually start to benet
from a more competitive
exchange rate and stronger
external demand.
The near term outlook for trade has improved
according to survey respondents, with the Trade
Condence Index (TCI) inching up to 117 points from
115 in the last report.
Brazil is a highly diversied economy, but relatively
closed to foreign trade. That said, we expect Brazil to
become more open to external trade over the medium
term as exports will benet from a more fairly valued
currency and a pick up in external demand.
Brazil will increase its trade links with Asian
economies, particularly with China and India. But the
recovery in the US and Europe also means that trade
with traditional partners will remain relevant.
Top ve export destinations*
2012 Rank 2030
1 China China
2 USA USA
3 Argentina Argentina
4 Japan India
5 Germany Korea
Conditions are improving (albeit mildly) for Brazilian
exporters, with just over half of survey respondents
expecting volumes to rise over the next six months.
Anincreased share of survey respondents reported that
a pick-up in global demand would be the main factor
driving the expansion of trade in the coming months.
Brazil
Equipping
for growth
Forecast data modelled by Oxford Economics,
based on HSBC Global Research macro data.
Spotlight: Technology
With emerging markets targeting Research &
Development (R&D) investment to scale the value
chain in the high-tech sector, this illustrates the need
for developed economies to invest in innovation to
remain competitive.
Why technology is important
Technology is crucial for enhancing labour productivity,
an area where Brazil has notably underperformed other
Emerging Market economies in the last two decades.
Brazil therefore needs to boost investment in R&D to
help unlock its growth potential.
Trade in technology goods for Brazil (2013-30)
Growth (% year)
Exports
0
8
6
4
2
10
High-tech goods Total
Total imports and exports are the sum of imports and exports from the modelled countries
Imports

Key ndings
Although Brazil ranks highly in terms of tax
incentives for R&D, the country performs poorly
in terms of patent applications (per capita),
lagging behind other Emerging Markets such as
China, Russia, Uruguay and Chile.
While Brazil will manage to export more
high-tech goods in the coming decade, it will
remain a net importer of such goods. However,
domestic factors such as laws specifying
minimum domestic content in equipment for oil
exploration will also boost local production of
high-tech goods.
Strong growth in imports of Information
Communication Technology (ICT) equipment
should also help to boost Brazils productivity
growth in the coming decades.
Whilst we are seeing a contrasting short-term trade
outlook, the longer-term trend for emerging markets
remains one of growth and businesses need to
consider now how best to capitalise on long-term
trade opportunities. An important element of this is
investing in research and development, which will
allow emerging markets to scale the global value
chain. Importantly, developed economies need to
enhance their research and development spend
to remain competitive.
James Emmett
HSBC Global Head of Trade and Receivables Finance
Short-term snapshot
HSBC Trade Condence Index
The TCI edged up two points from six months earlier to
reach 117, returning to the level seen one year earlier.
An improvement in foreign demand supported the rise
in the index, which is nonetheless well below its peak
level of 129 reached in H1 2010.
2H09 1H10 2H10 1H11 1H13 2H13
Source: HSBC TCI data
Neutral
Positive
Negative
80
120
140
100
2H11 1H12 2H12
Cross border business
The recovery in Europe bodes well for Brazilian
exporters, with more than a fth of respondents
reporting Europe as the most promising region for
business growth, a marked improvement from the
10% response found six months earlier. A quarter
of respondents identied Asia as being the most
promising region for trade over the next six months,
little changed from the previous survey.
Regional export ows
Growth (% year)
0
8
10
14
Source: Oxford Economics
S S Africa Mid East
&
N Africa
Europe
ex.
Russia
Aus, NZ
&
Oceania
Latin
America
Asia
ex.
Japan
North
America
2014-16
2017-20
2021-30
6
4
12
2
Corridors of choice
Brazils trade partners are geographically
diverse. Latin America, the US and Europe
have traditionally been important export
destinations for Brazil, but rapid demand
growth in commodity hungry China means that
Asias largest economy is currently Brazils top
exportdestination.
With the domestic manufacturing sector still
struggling to overcome competitiveness issues,
it is likely that commodity producers will be the
main beneciaries of the expected upturn in
global demand in coming months.
The TCI survey reveals that the currency of
choice for trade is predominately the US dollar,
identied by 89% of respondents. But currency
volatility was cited as the most signicant barrier
to trade by 39% of survey respondents.
Opportunities for business
Brazilian rms are relatively well positioned to benet
from a stronger near term outlook for growth in the
US and Europe. Over the medium term, Brazils
geographically diversied export base means that the
country can gain market share not only in commodities,
but in more technologically intensive products such as
airplanes and equipment for oil exploration. Moreover,
on-going robust growth in China, India and Latin
America should translate into signicant opportunities
for business expansion.
Trade ows are expected to increase in the short term, with just over
half of survey respondents expecting trade volumes to rise over the
next six months (slightly up from the previous reading, six months
earlier). According to the survey, stronger demand from Brazils
trade partners and an overall pick up in global trade should drive this
increase in trade ows, with 60% of respondents highlighting these
as maindrivers.
Forecast data modelled by Oxford Economics,
based on HSBC Global Research macro data.
Long-term outlook
With the US playing a key role in driving trade ows in the near term,
Brazilian exporters will certainly benet from stronger demand in its
second largest trade partner. Although we expect the recovery in
Europe to be relatively subdued, stronger demand from India should
provide some offset. Over a longer horizon, the US and China will
remain the key source of trade growth for Brazilian rms.
Corridors to watch
Brazils trade ows to China are expected to continue
growing strongly over the medium term, consolidating
its position as Brazils most important export destination.
However, as India continues its catch-up process with
advanced economies by growing at robust rates, Brazilian
exporters will also tap into their huge domestic market.
As a result, India will become Brazils fourth largest trade
partner by 2030 (amongst the 25 economies in the HSBC
Trade Forecast).
At a sector level, commodities such as iron ore and
animal products will remain a key driver of Brazils
exports. But as oil production from its deep-sea elds
takes off, Brazil is expected to become a large net
exporter of petroleum products by 2030. On the import
front, industrial machinery, transport and ICT equipment
are expected to dominate Brazils imports for the
foreseeable future.
Brazils projected sector contribution increase
in merchandise exports
0%
40%
80%
120%
Food and animals
Raw materials
Machinery and transport
Other
Mineral fuels
Manufactures
Beverages and tobacco Chemicals
Source: Oxford Economics
2014-16 2017-20 2021-30
Focus on technology
A poorly educated workforce means Brazil
will need to invest more in its human capital
to become a net exporter of high-tech goods.
Although Brazil ranks highly in terms of the
volume of tax support for R&D, it performs less
well in terms of patent applications per capita.
Perhaps the quickest way for a developing
nation to absorb technology is via importing
more modern ICT equipment from advanced
economies. In the case of Brazil, ICT equipment
will account for around 10% of the forecast
increase in merchandise imports in the years
to2030.
Increased demand for high-tech goods from
Brazil will become an increasingly important
driver of US export sales of ICT equipment.
Conclusion
An environment of stronger world trade growth poses
opportunities for Brazilian exporters. As activity in the
US and Europe gains momentum, and big Emerging
Markets such as China and India continue to grow at
a strong pace, Brazil will see a signicant acceleration
in external demand for its products. Moreover, the
prospects of a continued depreciation of the Brazilian
real and lower real wage growth suggest that the
country will regain some competitiveness in export
markets. This will allow the value of Brazilian goods
exports to grow by 7-8% a year on average in the years
to 2030. Strong growth in imports of ICT equipment
should also help to boost Brazils productivity growth
in the coming decades.
Forecast data modelled by Oxford Economics,
based on HSBC Global Research macro data.
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About the Data:
About the HSBC Trade Forecast Modelled by Oxford Economics
Oxford Economics has tailored a unique service for HSBC which
forecasts bilateral trade for total exports/imports of goods, based
on HSBCs own analysis and forecasts of the world economy to
generate a full bilateral set of trade flows for total imports and
exports of goods, and balances between 180 pairs of countries.
Oxford Economics produces a global report for HSBC, as well as
country specific reports on the following 23 countries: Hong Kong,
China, Australia, Indonesia, Malaysia, India, Singapore, Vietnam,
Bangladesh, Canada, USA, Brazil, Mexico, Argentina, UK, France,
Turkey, Germany, Poland, Ireland, UAE, Saudi Arabia, and Egypt.
The analysis also includes trade with Japan and Korea for a total
sample of 25 key trading nations.
Oxford Economics employs a global modelling framework that
ensures full consistency between all economies, in part driven
by trade linkages. The forecasts take into account factors such
as the rate of demand growth in the destination market and the
exporters competitiveness. Exports, imports and trade balances
are identified, with both historical estimates and forecasts for
the periods 2014-16, 2017-20 and 2021-30. Sectors are classified
according to the UNs Standard International Trade Classifications
(SITC) system at the two-digit level and grouped into 30 sector
headings. More information about the sector modelling can be
found on http://www.globalconnections.hsbc.com/
About the HSBC Trade Condence Index:
The HSBC Trade Confidence Index is conducted by TNS on
behalf of HSBC in a total of 23 markets, and is the largest trade
confidence survey globally. The current survey comprises six-
month views of 5,550 exporters, importers and traders from small
and mid-market enterprises on: trade volume, buyer and supplier
risks, the need for trade finance, access to trade finance and the
impact of foreign exchange on their businesses. The fieldwork
for the current survey was conducted between November
December 2013 and gauges sentiment and expectations on trade
activity and business growth in the next six months.
Technology Focus Methodology
This report focuses on how emerging markets are targeting
R&D investment to scale the value chain in the high-tech sector,
illustrating the need for developed economies to invest in
innovation to remain competitive. For this analysis, we collected
together four key high-tech sub-sectors into one group:
Office machines and automatic data-processing
machines (SITC code 75)
Telecommunications equipment (SITC code 76).
Electrical machinery and appliances (SITC code 77)
Photographic apparatus and optical goods (SITC code 88)
Based on the same underlying forecasts used for the existing
analysis of trends in bilateral trade flows, the report examines how
exports/imports of this group of products are expected to evolve
over time.
About HSBC Bank plc
Headquartered in London, HSBC is one of the largest
banking and nancial services organisations in the
world. HSBC is one of the worlds most international
commercial banks with over three million customers
in almost 60 markets.
For more information please see:
www.hsbc.com/globalconnections