Much uncertainty and turbulence have characterized the Brazilian economy in recent weeks.

Overcoming the obstacle to the possible annulling of the 2014 elections, the Temer government now faces the corruption complaint of the Prosecutor General of the Republic, Rodrigo Janot (who is still preparing a second allegation of obstruction of justice).

Parliament’s approval is now required and for the moment Temer seems to be able to rely on a solid majority. However, it is inevitable that the political stalemate of the government continues and therefore there are no conditions for the approval of the reforms in Parliament.

The most predictable scenario at the moment is that of a government that will be dragged until the 2018 presidential election, but without the strength to make the changes promised after Dilma's impeachment.

A year and a half stalled, with an election campaign that will be full of surprises, given the absence, for the moment, of strong and credible candidates.

On the other hand, we must point out that some great media are deploying in support of Temer. The magistrates, and consequently their investigations, first of all the Lava-Jato, no longer enjoy the almost unconditional support of the media and the population. The denunciation against Temer, which in the past would bring millions of Brazilian citizens to the streets, does not provoke the same indignation and mobilization of the times of Dilma.

If, at Dilma’s point, the idea was that any solution was better than her maintenance, today Temer’s renunciation or dismissal would leave a power vacuum that would leave space for disastrous political solutions (Lula’s return, Bolsonaro’s election, to name just a few) or to extra-constitutional interventions.

In short: for many it is better to hold their noses and support Temer for another year and a half rather than risk falling into a social and economic abyss.

 

Let’s see some updated data:

GDP (Value added at market prices)

2011 2012 2013 2014 2015 2016 2017
GDP – real growth (%) 3,9% 1,8% 2,7% 0,1% -3,9% -3,6% 0,39%

In this month, the economy has not signaled significant growth, unemployment continues to rise and raises concerns about the possible failure to reach the fiscal target for 2017. Stagnant investments have led economists interviewed by Banco Central to reduce the forecast Of GDP growth to + 0.39% (from +0.50% last month).

 

Inflation and real/dollar exchange 

2011 2012 2013 2014 2015 2016 2017
IPCA (IBGE – %) 6,50% 5,80% 5,90% 6,40% 10,67% 6,29% 3,48%

Still positive news on the inflation front, down to 3.48% per annum. The same comment as a month ago: the low utilization rate of installed capacity and the high level of unemployment are favoring a low inflation.

Banco Central is planning to cut the center of inflation goal of 2018 to 4.25%, compared to the current 4.50%.

 

2011 2012 2013 2014 2015 2016 2017
Exchange rate R$/US$ (end of the period) 1,88 2,04 2,34 2,66 3,9 3,25 3,32

Slightly higher R $ / US $ exchange rate forecasts for the end of 2017, estimated at 3.32 (it was 3.30 a month ago). Today, 28/06/2017, the change is at 3.31.

The global dollar weakening (in the last 6 months, it has lost almost 10% on the euro) has not risen in Brazil, where it has re-evaluated around 5%.

 

Interest rate

2011 2012 2013 2014 2015 2016 2017
Nominal Interest rate (end of the períod) 11,00% 7,30% 10,00% 11,80% 14,87% 13,75% 8,50%
Real interest (deflator: IPCA) 4,80% 2,50% 2,10% 4,20% 2,60% 6,90% 5,02%

 

The forecast of the discount rate (SELIC) at the end of 2017 is stable, always at 8.50%.

With falling inflation and weak currency, Brazilian assets are relatively cheap today, obviously without considering the political risk of the country.

 

The Brazilian stock market (Bovespa)

The Brazilian stock market index has closed the last sessions below 62.000 points.

Very penalized Petrobras shares, which will be subject of a specific post in the coming weeks.

Since there are no signs of improvement in the fundamental data of the economy and the political crisis is away from a solution, I can only recommend extreme caution to those who want to invest in Brazilian shares.