Successful auctions for the privatization of four power plants belonging to the Cemig (state company) and for the granting of 37 oil and gas extraction areas in Brazil. With these operations, the government will collect about 15.9 billion reais (12.1 from the sale of power plants and 3.8 from concessions), 4.2 billion more than expected at the beginning of the operation.

Considering that the government is facing serious difficulties in securing the achievement of the primary deficit target for 2017 (approved by the Congress for a value of 159 billion reais), this is an important shot in the arm for public accounts.

On the tax side, however, the revenue foreseen by the new “Refis” (conditional amnesty for firms/people evading tax, which provides for a generous payout of the debts towards the tax office) will be lower than expected due to changes made by Members of the Brazilian Parliament. Starting with an initial forecast of 13.3 billion reais, the government measure should allow to collect no more than 8.8 billion reais.

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% 0,70% 2,38%

 

Growth forecasts for GDP growth 2017 are still up.

From 0.5% a month ago, it went up to 0.7%, thanks to the increasingly strong signals of overcoming the economic crisis and for strengthening of the government, less exposed to a political crisis linked to the Lava-Jato scandal.

 

Inflation and real/dollar exchange 

2012 2013 2014 2015 2016 2017 2018
IPCA (IBGE – %) 5,80% 5,90% 6,40% 10,67% 6,29% 2,95% 4,06%

 

Inflation forecast 2017 is still falling, even below the minimum threshold (3%) scheduled for 2017 by the Brazilian Banco Central. Exceptional agricultural harvest and still low utilization of production capacity are contributing to contain price growth.

  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 3,16 3,30

 

 

Forecasts on the real / dollar exchange rate also declined. The year-end change is expected at R$ 3.16, due to the weakness of the global dollar. Today (2/10/2017) the dollar is quoted at 3.17, against 3.14 a month ago.

The euro is now around 3.73 reais, almost unchanged from 3.74 in early September.

 

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% 7,00% 7,00%
Real interest (deflactor: IPCA) 2,50% 2,10% 4,20% 2,60% 6,91% 4,05% 2,94%

 

The forecast of the discount rate (SELIC) by the end of 2017 was also down, estimated at 7%. With inflation under control, in the two next meetings scheduled for 2017 (October 25 and December 5), Banco Central should, according to market forecasts, cut by 1.25 percentage points SELIC, today at 8.25% .

 

The Brazilian stock market (Bovespa)

On September 18, 2017, the Brazilian stock market reached its peak, surpassing for the first time the index of 76,000 points.

From that moment, however, healed a series of negative sessions and today (Oct. 2) Ibovespa is around 74,000 points.

It is difficult to predict what the trend may be in the short / medium term, although the market does not seem to be heading for massive sells after the strong growth in the last quarter (+ 18.1%), the highest in the last 8 years.

With Janot’s acting out of the scene, replaced by the less “belligerent” Raquel Dodge, the tensions between executive and judicial powers should be reduced: for the Temer government (however, at the lowest approval level), increase the chances of bringing Brazil to presidential elections of autumn 2018.