The official result of the Brazilian GDP in 2017 was announced on 1 March, in line with forecasts (+ 1.0%). It is interesting to observe the contribution of the various macro-sectors to the growth / decrease of GDP in recent years, as shown in the table below.
Brazilian GDP growth was driven by the agri-food sector which, while representing “only” 5% of Brazilian GDP, was responsible for a large part of its growth in 2017. Exceptional harvests and the good performance of agricultural commodities prices are factors that should be repeated in 2018, according to the forecasts.
Not well the industrial sector, still stagnant after 3 consecutive years of recession, and the government consumption (-0.6%), penalized by too many corruption scandals and growing public deficit.
The 2017 has therefore been saved by the agri-food sector: too little to say that Brazil has overcome the effects of the recession. However, the indicators of the last quarter of 2017 show more consistent signs of recovery, especially in the industrial area.
On the other hand, the reform of the social security system, which is necessary for the rebalancing of public accounts but which is extremely unpopular, has been definitively closed: it will be the government that will emerge from the polls in November 2018 to ensure its approval.
|The trend of annual GDP||1,8%||2,7%||0,1%||-3,9%||-3,6%||1,0%|
|FBCF (*) – Gross capital formation||-0,6%||6,1%||-4,4%||-14,1%||-10,2%||-1,8%|
The FBCF index measures how businesses have increased their capital goods, or goods which are used to produce other goods (machinery, equipment and materials of construction…). This value is important because it highlights the extent to which a country’s production capacity is increasing or decreasing. In this sense, the weight percentage of GDP of FBCF (table below) is steadily declining, a signal of a dangerous falling of the investments, also in view of technological renewal of the Brazilian industrial park.
|FBCF (% of GDP)||20,6%||20,2%||20,5%||19,7%||18,2%||16,4%||15,6%|
15.6% of 2017 is the lowest value recorded by the historical series, which began in 1996.
Let’s see some updated data:
GDP (Value added at market prices)
|GDP – real growth (%)||1,8%||2,7%||0,1%||-3,9%||-3,5%||1,01%||2,90%|
The forecast of GDP growth in 2018 rose from 2.8% to 2.9% in a few weeks, a positive sign of an optimistic market regarding the performance of the Brazilian economy.
In the past few years, expectations have deteriorated rapidly as the months pass, today the opposite is happening.
Inflation and real/dollar exchange
|IPCA (IBGE – %)||5,80%||5,90%||6,40%||10,67%||6,29%||2,95%||3,70%|
The inflation rate forecast for 2018 is still decreasing, now estimated at 3.7%. If agricultural yields were to prove as exceptional as in 2017, there is room for a further reduction in inflationary expectations, with positive effects on interest rates and economic growth.
|Exchange rate R$/US$ (end of the period)||2,04||2,34||2,66||3,90||3,25||3,25||3,30|
Without fluctuations the real / dollar exchange rate, today at 3.23 and expected to 3.30 at the end of 2018 ..
The euro is today quoted at around 4.00 reais.
|Nominal Interest rate (end of the períod)||7,30%||10,00%||11,80%||14,87%||13,75%||7,00%||6,75%|
|Real interest (deflactor: IPCA)||2,50%||2,10%||4,20%||2,60%||6,91%||4,05%||3,05%|
The discount rate (SELIC) of the end of 2018 is still estimated at 6.75%. Further filings of inflation could push Banco Central to lower the SELIC, but it is still a hypothesis not considered by most economists.
The Brazilian stock market (Bovespa)
The Bovespa is now around the 86,5 thousand points, then above the psychological barrier of 85 thousand points.
Analysts are divided on the trend in the coming months, but the most positive scenario (reaching 109 thousand points, according to BTG Pactual) is now discarded given the lack of approval of the pension reform.
However, many still predict the overcoming of 90 thousand points by the end of 2018, but always considering an international scenario of relative stability.