Brazil’s two-year recession is entering its third year, and the miserable cycle of job losses and dreadful consumer spending are pulling the middle class backwards. Igor Cornelsen, the former bank executive that helped get the economy moving in 2008, said that unemployment could push past the 10 percent mark, and retailers will continue to report double-digit losses unless the government wakes up and starts using capital reserves to stimulate the economy.
Cornelsen is now an investment manager for Bainbridge Investments, the firm he founded when he moved to Florida in 2010. Cornelsen is still very active in the Brazilian investment market. He also helps other investors wade through the turbulent financial water that the Brazilian government has created. The financial turbulence is the result of recent policies enacted by the Rousseff administration. Thanks to inept management by the government, industrial production contracts have dropped for the last 22 months.
One of the biggest and most important industries in Brazil is the automobile industry. Several economists think car sales may fall by another 7.5 percent in 2016, but Cornelsen thinks that estimate may be low. The latest forecast for the economy is a 2.9 percent contract, but Cornelsen recently told investors that the central bank’s figure is 3.4 percent. If that happens, the unemployment percentage will continue to increase, and car sales will continue to decline. The auto industry has placed more than 6,000 workers on leave and cut back the hours of 36,000 other workers. Those workers would also be on leave if it weren’t for a government subsidy program that pays half their salaries, according to Cornelsen.
The Brazilian government has to attract more foreign investment money, and introduce more subsidy programs in order for the economy to recover, but there is little movement from the government so far. Mr. Cornelsen said General Motors promised to invest another $1.6 billion in their Brazilian plants, but they put that promise on hold because the government is dragging their feet on developing a comprehensive plan to end the recession.
But in spite of the lethargic government, and the other negative issues that has Brazil bleeding from its economic wounds, Cornelsen posted on facebook that he believes investors have an opportunity to make some serious money if they invest in assets that are performing but are undervalued. The Cornelsen investment strategy is to invest in the industries that are having issues now, but are expected to recover faster than other assets. Igor thinks industrial production contracts for mining, auto manufacturing and ethanol will see better times in 2016 if the government follow through on its promises.
Mr. Cornelsen is not predicting the end of the recession, but he is predicting that the government will have to use capital reserves just like China is doing to get the economy moving again.