The election of Jair Bolsonaro to the Presidency of the Republic opens a new chapter also for the Brazilian economy. The financial markets have reacted with a “moderate enthusiasm” to the election result and a period of speculation has begun on which will be the first moves in the economic area promoted by Bolsonaro.

Surely, and it could not be otherwise given the gravity of the situation, the pension reform will be elaborated and voted in the first months of the mandate. There are rumors about its possible structure, but it is a politically sensitive issue that will have to wait for the results of the political articulation to get to know its content better. Immediately after the elections, two major economists, Arminio Fraga and Paulo Tafner, presented to Bolsonaro a pension reform proposal that would allow to economize almost 3 times as much as the reform that is being studied today.

In the meantime, Banco Central confirmed the discount rate at 6.5%, keeping it unchanged for the 7th consecutive month. However, the market expects to increase towards 8% during 2019.

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% -3,5% 1,01% 1,36%

The growth forecast for 2018 GDP, as well as that for 2019 (+ 2.5%) was stable at +1.36.

As a consideration almost “ex post”, it can be said that the much criticized government Temer has succeeded in the difficult task of getting Brazil out of two years of serious recession. In a very precarious political and social context, the Temer economic team has shown great competence and determination in achieving the objectives.

Many hope that Bolsonaro and Guedes will include in their team qualified technicians of the Temer government, such as the Minister of Planning, Esteves Colnago.


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% 4,40%

The forecast for inflation in 2018 is still growing slightly, estimated at 4.40%. The effects of the devaluation of the real, despite the reversal of the last weeks, are now making their effects felt.

  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 3,25 3,70

The dollar quotations of recent weeks have fallen substantially, which the economists expect to close 2018 at around 3.70 reais (it was 3.89 a month ago). The election of Bolsonaro has given strength to the real, but to see further declines in the dollar it will probably be necessary to wait for the first concrete results of the new economic policy.

After reaching 4.90 reais in the worst pre-election period, the euro was further devalued and today is quoted at 4.15 reais.


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

The discount rate (SELIC) at the end of 2018 is still stable at 6.50%. Banco Central has made it clear that it will keep SELIC at historic lows at least until the end of the year. In 2019, inflation is expected to rise, which should lead to a gradual increase in the discount rate.


The Brazilian stock market (Bovespa)

The stock market reached its historical maximum yesterday at 89.598 points. According to several analysts, the Bovespa index could exceed 100 thousand points already at the beginning of 2019, dragged by the performance of state-owned companies in the smell of privatization (Petrobras, Eletrobras, Cemig and others).

In the coming weeks I will analyze the performance of the Bovespa and the real in more detail.