On February 28th, the official result of the Brazilian GDP in 2018 was announced, whose growth was below expectations (+ 1.1% instead of + 1.3% forecast by the Focus research of only one month ago).
Despite this growth, Brazil’s 2018 GDP is still 5.1% lower than that recorded at the end of 2013.
Among the main causes of this modest performance of the 2018 GDP are the April / May truckers’ strike, the worsening of the Argentine economic crisis (which has sensitively affected Brazilian exports), the persistence of a high level of unemployment and the lack of approval of the reforms.
It is interesting to observe the contribution of the various macro-sectors to the growth / decrease in GDP in recent years, as shown in the table below.
While in 2017 it was mainly the agri-food sector that allowed Brazilian GDP growth, even though it represented “only” 5% of Brazilian GDP, in 2018 the GDP of the sector remained stable. The exceptional yields of 2017 remained, but there was no further growth.
The real driving force behind the moderate growth of 2018 was the service sector (which accounts for around 70% of GDP), which grew by 1.3%. Among these, trade sector was very good (+ 2.3%).
Household consumption was also good, with a + 1.9% indicating an improvement in the country’s confidence climate.
The industrial sector showed a slight growth (+ 0.6%), the first since 2013. Still very modest, but a signal however encouraging.
Government consumption was stable, still penalized by too many corruption scandals and a growing public deficit.
However, the data for the last quarter of 2018 are not very encouraging and still do not report substantial growth for 2019. According to many economists, even with the approval of the pension reform, GDP growth should be limited to a modest + 2% .
|The trend of annual GDP||3,0%||0,5%||-3,5%||-3,3%||1,0%||1,1%|
|FBCF (*) – Gross capital formation||6,1%||-4,2%||-13,9%||-12,1%||-2,5%||4,1%|
(*) 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. The growth recorded in 2018 (+ 4.1%) is partly the result of an accounting “trick” concerning the incorporation of oil platforms. The real growth of the FBCF was about + 2%, positive for the first time since 2013.
However, the percentage weight of the FBCF on GDP (table below) is still low, a sign of a dangerous fall in investments, also seen with a view to technological renewal of the Brazilian industrial park.
|FBCF (% of GDP)||20,2%||20,5%||19,7%||18,2%||16,4%||15,6%||15,8%|
Let’s see the update of some economic indicators.
GDP (Value added at market prices)
|GDP – real growth (%)||2,7%||0,1%||-3,9%||-3,5%||1,01%||1,30%||2,30%|
The result of the 2018 GDP also influenced the forecast of its evolution in 2019. Until last month the median of the growth forecast by the economists consulted by the Central Bank was around + 2.50%, today it has already passed to +2.30 %.
Therefore, a swift adoption of the pension reform (speaking by June 2019) becomes even more crucial, without the parliamentary debate overturning its foundations and therefore the depth of savings for the state coffers.
Inflation and real/dollar exchange
|IPCA (IBGE – %)||5,90%||6,40%||10,67%||6,29%||2,95%||3,69%||3,94%|
The decline in inflation forecast in 2019 is still decreasing, albeit slightly, to well below 4%.
The new director of Banco Central, Roberto Campos Neto, in office since February 28, has indicated that he wants to continue the policy of his predecessor, Ilan Goldfajn, who has skillfully managed the monetary policy during the Temer government, bringing the inflation under control without raising interest rates.
|Exchange rate R$/US$ (end of the period)||2,34||2,66||3,90||3,25||3,25||3,75||3,70|
The dollar is quoted today at R$ 3.78, up from the quotations of a month ago. The market predicts a listing of R $ 3.70 for the end of 2019. The dollar is a market mood thermometer, concerned with the real ability of the Bolsonaro government to articulate the approval of the pension reform. After the Carnival, the Government must finally implement the economic agenda promised in the electoral campaign.
The euro is now quoted R $ 4.32, also in appreciation on the real.
|Nominal Interest rate (end of the períod)||10,00%||11,80%||14,87%||13,75%||7,00%||6,50%||6,50%|
|Real interest (deflactor: IPCA)||2,10%||4,20%||2,60%||6,91%||4,05%||2,81%||2,56%|
The discount rate (SELIC) forecast at the end of 2019 remained stable at 6.5%. Although the real rate (Selic minus inflation forecast for the end of 2019) remains at historically very low values, the rates that companies have to pay for bank loans are still very high (ranging from 30 to 50% per annum, outside the BNDES circuit): another knot to solve if you really want to incentivize investments.
The Brazilian stock market (Bovespa)
The Brazilian stock exchange fell slightly, with the stock index (Ibovespa) now around 94 thousand points (around 97 thousand at the beginning of February).
The result below the 2018 GDP expectations has influenced the last sessions of the stock exchange, provoking a series of achievements. Not even the good result of Petrobras’ 2018 (for the first time in profit after several years of losses) has raised the mood of investors.