Brazil’s economic growth party has paused, prompting global companies to consider tactical measures to hedge risks, but the long-term outlook for Latin America’s economic powerhouse remains strong.
Srinivas Thiruvadanthai, director of research at the Jerome Levy Forecasting Center, says he expects Brazilian interest rates to continue to fall—ultimately a boon for local businesses—and the real to remain under pressure, even after plummeting 23% against the dollar since June 2011.
Winston-Salem, N.C.-based Hanesbrands runs operations in Brazil, but its affiliate there pays in dollars for supplies it purchases from the company’s global supply chain. Hanesbrands Treasurer Donald Cook says the company hedges fluctuations in the real and other currencies by dollar-cost-averaging its foreign affiliates’ purchases of dollars, which smoothes out volatility when they acquire goods from Hanesbrands’ supply chain.
Regardless of currency fluctuations, Brazil poses a challenge because of its duties and protectionist policies. “[The weakening real] makes it difficult to optimize a global supply chain, especially in a rising [U.S. dollar] environment,” Cook says.