Signs pointing to the country’s possible exit from the strong recession started in 2014 continue to emerge.

Economic data for the second quarter of 2017 show growth of 0.2% over the first quarter, which in turn grew by 1% compared to the the last quarter of 2016. In the chart below (source: IBGE data elaborated by O Estado de Sao Paulo), the red line shows the growth of the PIB over the previous quarter, while the gray line shows the growth over the same quarter of the previous year:

crescita trimestrale

The growth of 0.2% is due to higher consumption of households (+ 1.4%) and services sector (+ 0.6%), while the industrial sector (-0.5%) and investments (-0.7%) declined.

Growth in household consumption is a positive indicator, but it must be remembered that it is at least partly tied to the release of inactive FGTS funds (liquidation), which has given liquidity to the market, but only on time: exhausted the “effect FGTS “, it will be necessary to see whether sustained growth in consumption will be confirmed or not.

In my view, only when positive and substantial signals from industry and private investment will come we will be able to talk about a real economic recovery in Brazil. Although the recession is slowly coming to an end, the investment rate (FBCF) is now only 15.5% of GDP and thus far from pre-crisis levels, as the table below shows:

2011 2012 2013 2014 2015 2016
FBCF (% of GDP) 20,6% 20,2% 20,5% 19,7% 18,2% 16,4%



Noteworthy, however, is the excellent performance of the automotive industry: sales in January-August 2017 are 5.3% higher than in the same period of 2016 and in August alone growth was 17%.

In this scenario, Banco Central (whose Monetary Policy Committee – COPOM meets this week) is likely to decide a further cut of discount rate (SELIC), which could fall to 8.25%.

Let’s see some updated data:

GDP (Value added at market prices)

2012 2013 2014 2015 2016 2017 2018
GDP – real growth (%) 1,8% 2,7% 0,1% -3,9% -3,6% 0,50% 2,00%


Forecasts for GDP growth of 2017 slightly increased, thanks to quarterly data commented above. The growth of 0.5% should be reached inertly (thanks to the growth accumulated in the first half), except unlikely disasters, but there is room for slight up.


Inflation and real/dollar exchange 

2012 2013 2014 2015 2016 2017 2018
IPCA (IBGE – %) 5,80% 5,90% 6,40% 10,67% 6,29% 3,38% 4,18%

Always under control, at least in the expectation, inflation 2017. It will be checked in the coming months if the growth in household consumption will lead to some tension on the inflationary front.

  2012 2013 2014 2015 2016 2017 2018
Exchange rate R$/US$ (end of the period) 2,04 2,34 2,66 3,90 3,25 3,20 3,43



Downturns the real / dollar exchange rate forecasts at R $ 3.20 (end of 2017), mainly due to the global weakness of the dollar. Today (4/9/2017) the dollar is quoted at 3.14, with no major changes compared to a month ago.

The euro is now around 3.74 reais, compared with 3.69 in early August.


Interest rate

2012 2013 2014 2015 2016 2017 2018
Nominal Interest rate (end of the períod) 7,30% 10,00% 11,80% 14,87% 13,75% 7,25% 7,50%
Real interest (deflactor: IPCA) 2,50% 2,10% 4,20% 2,60% 6,91% 3,87% 3,32%

The forecast of the discount rate (SELIC) by the end of 2017 is now close to 7%, in strong decrease. With inflation under control, Banco Central should, according to market forecast, cut by 2 percentage points SELIC until the end of the year.


The Brazilian stock market (Bovespa)

As expected in my latest posts, the rush of the Brazilian stock exchange continues. Its index almost reached 72,000 points, up 16% over two months ago.

The positive data on the growth of the economy and the likely new cut of Selic should inject new confidence in markets in the short term, but there is also the risk of massive sells when (within a couple of weeks) the Attorney General of Republic, Rodrigo Janot, will forward the new complaint against Temer.

Not to be underestimated, however, a possible escalation of the international tension caused by the North Korean crisis: paying the highest price are always emerging markets.