Regretfully saying so, but the month of April took away a large chunk of the Bolsonaro government’s credit. Apart from the more purely political considerations, on which this informative site – in principle – tries not to pronounce itself, the reality of the facts shows a very worrying institutional and decision-making chaos.
The crucial point is always the pension reform, from whose approval depends the balance of the public accounts and, consequently, the future of the country’s economy. It is not yet clear what the government intends to do to get the votes needed to push through the reform without losing its economic impact: meanwhile, entrepreneurs and investors are beginning to lose confidence in the ability this government can have in improving the economic environment .
According to data released in mid-April by Banco Central, the IBC-Br index of February 2019 (which measures the health of the economy) recorded a decrease of 0.73% compared to that of January, which in turn had been 0.31% lower than in December 2018. If a negative figure should also be recorded in March, Brazil would again find itself heading for a new recession (two quarters of negative GDP growth are needed to be technically in recession ).
To record the creation, by the Brazilian government, of the figure of an “ombudsman” who will have the role of protecting foreign investors, receiving complaints (or even just doubts) and seeking a solution for any conflicts that may arise.
On the energy front, the “Patria” investment fund offered for sale the Argo company, which owns about 1,100 kilometers of transmission lines in the Northeast region. Estimated value of the transaction: 1.5 billion dollars.
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%||1,49%|
Real fall in the 2019 GDP growth forecast: from + 2.5% at the beginning of the year we have gone to a current + 1.5%. A few months were enough to dampen the enthusiasm of economic operators and return to the modest forecasts of the Temer government period. And things can get worse if the Bolsonaro government fails to boost the economy, as promised during the election campaign.
Inflation and real/dollar exchange
|IPCA (IBGE – %)||5,90%||6,40%||10,7%||6,29%||2,95%||3,69%||4,04%|
The forecast for 2019 inflation rose slightly, returning to above 4% after a few months of decline. Also in this case, the uncertainty regarding the progress of the pension reform weighs. The inflationary effects of the enhancement of the dollar in recent weeks should also not be underestimated.
|Exchange rate R$/US$ (end of the period)||2,34||2,66||3,90||3,25||3,25||3,75||3,75|
The dollar is quoted today at R$ 3.95, up from a month ago. The market expects a quotation of R$ 3.75 for the end of 2019 (it was 3.70 a month ago).
The euro is now listed as R$ 4.43, also in strong appreciation of 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%||2,46%|
The forecast of the discount rate (SELIC) at the end of 2019 is still stable at 6.5%. With inflation slightly up, it is difficult to think that Banco Central would risk lowering the SELIC to stimulate the economy. Also in this case, the node remains the approval of the pension reform that reduces the pressure on public accounts and allows a range of maneuver for a significant cut in the discount rate.
The Brazilian stock market (Bovespa)
Despite the succession of negative news, the stock market continues to be around 94/96 thousand points. The market continues to bet on the Bolsonaro government, but seems to be supported more by the strong growth of the US economy than by local factors. A change in the international situation could have devastating repercussions on the Brazilian stock market.
On the other hand, the value of Brazilian assets is (in dollars) still quite attractive and keeps investors’ appetite high.
Today (6 May) the Bovespa index is around 96 thousand points (around 95 thousand at the beginning of April).