Market Monitor - Machinery - Brazil 2016

Market Monitor

  • Brazil
  • Machines/Engineering

18th August 2016

The machinery sector mainly suffers from a massive decrease in public and private investments, especially in the construction and oil/gas sectors.

  • The machinery sector remains severely impacted by the economic downturn (Brazilian GDP is expected to contract 3.7% in 2016 after shrinking 3.8% in 2015). The Brazilian business environment has deteriorated while interest rates, inflation and exchange rate volatility remain high. The machinery sector mainly suffers from a massive decrease in public and private investments, especially in the construction and oil/gas sectors as major buyer industries.
  • Machines/engineering is one of the most leveraged Brazilian industries as it heavily depends on long-term financing from both the government and banks. Many machines businesses are highly indebted, due to large investments made in previous years when businesses expanded. Serving those debts has become increasingly difficult, mainly due to higher interest rates and the fact that banks are unwilling to provide new credit.
  • Next to demand, profit margins have deteriorated over the last 12 months and are expected to further decline in H2 of 2016.
  • Payment behaviour in the machinery sector is rather bad, as non-payments have increased in 2015 and are expected to increase further in the coming six months. Due to the credit crunch generated by high interest rates many businesses are stretching their payment terms. Insolvencies of machinery businesses have also increased, and a further rise in business failures is expected in the coming months.
  • Due to increasing credit insurance claims, the deteriorated business performance and increased credit risk, our underwriting stance is currently restrictive for all machinery subsectors.

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