"The mild recession we thought was coming in Brazil will be much worse," says Scott Brown, chief economist at Raymond James Financial in St. Petersburg. He predicts a moderate recession lasting about a year, but cautions, "We don't know how bad it can get."
Indeed, other experts sound much more ominous. Recently, Lehman Brothers economist John Llewellyn said Brazil -- with its sinking currency, risky debt and complex economic woes -- will suffer a deep recession that infects the rest of Latin America. Brazil, he believes, may deliver the next major blow to the world's financial markets.
There are many unknowns: Whether Brazil's President Fernando Cardosa can control government spending and repay foreign debt; whether the International Monetary Fund will come to the rescue; whether other Latin American economies will be dragged down, too.
But amid the uncertainty, some things are clear. For one, turmoil is hardly new for Brazilians. "It's not as though we've never had this happen before," says lawyer and 20-year Brazil veteran Michael Royster, the senior partner in Steel, Hector & Davis' S?o Paulo office. "People in Brazil are really afraid of the bad old days of inflation coming back. If you're a business down here that depends on imports, you're in trouble" because of the sharply devalued real, he says. It's a particularly lousy time to come to market with luxury imports, which seem even more exorbitant to Brazilians than before. Other potential pitfalls are increases in certain taxes on business -- part of the government's effort to shore up deficits. On the other hand, the government is offering tax incentives to start-up companies, and dollars spent in Brazil now go far. If you're careful, "it's a good time to come in," Royster says. "There's more bang for the buck."
Where to invest? In Brazilian industries exporting to countries that spend dollars, says Diego Veitia, chairman of International Assets Holding Corp. in Winter Park. The 25-year-old global investment house last year alerted its customers that a Brazilian currency devaluation seemed inevitable. Now Veitia sees Brazilian aircraft, flower, coffee, soybean, and ore and precious-stone mining operations -- all big exporters -- as good investment bets; those products will seem cheap in dollars. "If you are investing in Brazilian exports, it can be absolutely superb," he says.
This is not the time to market expensive products to Brazilians, as many companies are learning. Miami-based Ryder System, for example, runs a $200 million business in Brazil delivering parts to GM and Volkswagen plants there. As car sales tanked, auto plants cut production and laid off workers; revenues from Ryder's auto parts operation in Brazil fell 30%, the company told Wall Street in December. Ryder had to lay off workers and take about a $3 million charge there in the fourth quarter.
Citing volatility in Brazil and sensitivities in Detroit, Ryder officials declined to be interviewed for this column. Its story, one of many damage-control efforts going on now, is just a piece of the big picture there -- a taste of the economic pain reaching well beyond Brazil.