2019 began with the establishment of Bolsonaro to the Presidency of the Republic and with a warm welcome reserved by the financial markets. In the first week of the year the Bovespa index grew by 4.5%, while the dollar’s quotation fell 3.5%.

As a final point of 2018 it is interesting to see how far the forecasts for the beginning of the year have been achieved or not. The table below indicates the forecast and final data of the 5 indicators followed monthly by the blog. It should be noted that the data on GDP and inflation in 2018 are still estimates.

  Forecast January 2018 Real data 2018
GDP + 2,69% + 1,30%
Inflation rate (end 2018) + 3,95% + 3,69%
Real/Dollar exchange (end 2018) 3,32 3,87
Interest rate (Selic – end 2018) + 6,75% + 6,50%
Real interest rate + 2,80% + 2,81%

 GDP: 2018 had begun with a certain optimism given the results of 2017, which signaled the exit from the recession of the period 2015-2016. The economy, on the other hand, has not grown as expected, especially as a result of the failure to approve the crucial reforms for Brazil, (pension and tax). This must be added to the truckers’ strike, which paralyzed the country in May and caused a contraction not fully recovered in the following months.

Inflation: it was the surprise of 2018 and one of the factors that allowed Brazil to grow, even if below expectations. Few expected such low inflation, especially after the strong devaluation of the real in the second half. The still high unemployment rate (around 12%) and the excess of unutilized production capacity reduced price tensions, and the same should happen in 2019, also foreseeing a more sustained growth.

Exchange rate: the real suffered a strong devaluation starting from the month of May. The prospect of another year of limited growth and uncertainties about fiscal balance weighed heavily on the quotations. Surely almost none of the economists expected such a strong monetary strain.

Selic: the nominal interest rate closed substantially in line with the forecasts of early 2018. Inflation under control could allow Banco Central to keep Selic at historic lows, thus further boosting the growth of the economy in 2019.


Let’s see the update of some economic indicators.

GDP (Value added at market prices)

2013 2014 2015 2016 2017 2018 2019
GDP – real growth (%) 2,7% 0,1% -3,9% -3,5% 1,01% 1,30% 2,53%

The GDP growth forecast for 2019 remains at around 2.5%. As I wrote a month ago, it is a goal within the reach of Brazil, given the propensity to return to invest, also expressed by foreign companies. The agri-food sector should once again make the lion’s share, thanks to the record-breaking crops forecast for 2019.

The Bolsonaro government is giving signs of wanting to quickly dissolve (exploiting the extreme popularity it enjoys) the main nodes that impede growth, those linked to the approval of the pension/fiscal reforms and privatization. Once the balance of public finances is assured, the economy could grow at an important rate.


Inflation and real/dollar exchange 

2013 2014 2015 2016 2017 2018 2019
IPCA (IBGE – %) 5,90% 6,40% 10,67% 6,29% 2,95% 3,69% 4,01%

For 2019, the forecast is inflation growth of around 4%. With the dollar steady (or sluggishly falling), a still low utilization of production capacity and still high unemployment there should be no exaggerated inflationary tensions during the year. Except, obviously, turbulences on international markets.


2013 2014 2015 2016 2017 2018 2019
Exchange rate R$/US$ (end of the period) 2,34 2,66 3,90 3,25 3,25 3,75 3,80

The dollar is quoted today at R$ 3.72, a sharp decline compared to the prices at the end of 2018. The market continues to forecast a listing of R$ 3.80 for the end of 2019, considering that this is almost a new “standard” of the quote.

Let’s not forget, however, that exactly one year ago, the quotation was  $ 3.23 and that the prospects of the Brazilian economy were not as promising as the current ones. If the investment flows should increase as expected and in the absence of strong turbulence on the international markets, the real could appreciate on the dollar significantly.

The euro, which had reached 4.36 reais a month ago, is now quoted R$ 4.25.


Interest rate

2013 2014 2015 2016 2017 2018 2019
Nominal Interest rate (end of the períod) 10,00% 11,80% 14,87% 13,75% 7,00% 6,50% 7,00%
Real interest (deflactor: IPCA) 2,10% 4,20% 2,60% 6,91% 4,05% 2,81% 2,99%

The discount rate (SELIC) forecast of the end of 2019 is now 7%, a slight increase compared to the end of 2018 (6.5%) but much lower than the forecasts of a few months ago. Economists think that Banco Central will have to carry out some upward intervention in 2019 to contain a possible increase in inflation and keep it close to the 4.5% target.


The Brazilian stock market (Bovespa)

During the first sessions of 2019 the Brazilian stock exchange has more than once exceeded its all-time high and today is around 92,000 points. The market wanted to celebrate the Bolsonaro settlement, whose economic program promises fiscal equilibrium, reforms, privatization and less bureaucracy / controls on entrepreneurial activity.

As I wrote in the previous post, there are the conditions for the Brazilian stock index to have an extraordinary performance in 2019.