As a final moment in 2019, it is interesting to see to what extent the forecasts for the beginning of the year have been fulfilled or not. The table below indicates forecast and final data of the 5 indicators followed monthly by the blog. It should be borne in mind that the data relating to GDP and inflation 2019 are still estimates. 

  Forecast January 2019 Real data 2019
GDP + 2,53% + 1,30%
Inflation rate (end 2019) + 4,0% + 4,2%
Real/Dollar exchange (end 2019) 3,80 4,01
Interest rate (Selic – end 2019) + 7,0% + 4,5%
Real interest rate + 3,0% + 0,3%

 GDP: at the end of 2018, the election of Bolsonaro caused a strong optimism regarding the potential growth of GDP, but soon it was reduced by two important events: the Brumadinho catastrophe (January 2019), in more than 200 people died and that paralyzed a considerable part of the production (and consequent export) of iron derivatives by Vale, and the Argentine crisis (April 2019), which caused a sharp contraction in Brazilian exports to the neighboring country. In addition to these two dramatic events, the poor performance of the Bolsonaro government caused the low growth of Brazilian GDP: on the one hand led to the approval (belatedly but finally) of the pension reform alone and on the other it frightened investors (especially foreigners) with its reactionary and undemocratic positions, as well as with poor management of environmental crises (fires and deforestation in the Amazon and oil pollution of the coasts).

Inflation: for another year, low price growth was one of the factors that allowed Brazil to grow, although below expectations. Despite the devaluation of the real, the increase in the price of imported products did not cause inflationary tensions, counterbalanced by the still high unemployment rate (around 11%) and by the excess of unused production capacity. In the last weeks of 2019, there was an unexpected increase in inflation (+ 1% in December only), which Banco Central will have to manage with the competence and autonomy shown in recent years.

Change: another year of suffering for the real, subject of speculative attacks between October and November 2019. Even if the promise of the Bolsonaro government, at the beginning of the mandate, was that of a stronger currency, in practice the devalued real was a weapon to encourage exports and thus get out of the stagnation of the economy. The gradual lowering of the discount rate by Banco Central made Brazilian bonds much less attractive, distancing foreign institutional investors. Last and relevant factor, the inflow of foreign direct investment (FDI) was well below expectations, and this is certainly one of the problems (but also a great opportunity) of 2020 for the government: will the bizarre and little reliable Bolsonaro be able to guarantee the democratic and trustworthy that big companies need in order to be able to invest in Brazil with a certain peace of mind?

Selic: the aggressiveness with which Banco Central reduced the discount rate during 2019 was certainly the surprise element of 2019. Supported by inflation under control and urged to stimulate economic growth, Banco Central has reduced Selic by up to 4.5%. The effects on growth are still limited, but hopefully they will be more explicit in 2020, with expected greater investments in the production sector. The Brazilian stock exchange, whose index grew 31.5% in 2019, has benefited most so far.

We see below the trend of the main economic indicators:

GDP (Value added at market prices)

  2014 2015 2016 2017 2018 2019 2020
GDP – real growth (%) 0,5% -3,5% -3,3% 1,0% 1,1% 1,17% 2,3%

In the last quarter of 2019, GDP showed significant growth, driven in particular by household consumption. The release of FGTS quotas introduced liquidity on the Market, which stimulated the demand for consumer goods. With interest rates at historic lows, it is hoped that private investment will resume in 2020 (for public ones it will be another year of stagnation, due to budgetary constraints) and unemployment will decrease, giving rise to a virtuous cycle of growth.

Inflation and real/dollar exchange 

  2014 2015 2016 2017 2018 2019 2020  
IPCA (IBGE – %) 6,40% 10,7% 6,29% 2,95% 3,69% 4,20% 3,60%  

As mentioned above, inflation has given alarming signs of growth in the last months of 2019, after years of continuous decline. It was enough for the economy to “warm up” slightly for the prices of some products (gasoline and meat, among others) to undergo significant increases. Furthermore, the strong devaluation of the real is manifesting the consequences on the prices of imported products and also affecting the formation of the price of domestic products. Banco Central will be responsible for keeping inflation under control, to prevent that the expected economic growth will happen to the detriment of those who suffer most with the increase in prices, i.e. the poorest classes.



2014 2015 2016 2017 2018 2019 2020  
Exchange rate R$/US$ (end of the period) 2,66 3,90 3,25 3,25 3,75 4,01 4,09  

For the third consecutive year the real has depreciated against the dollar. In the three-year period 2017-2019 it lost about 20% of its value: good for exports, bad for imports, very bad for those who invested their dollars or euros in Brazil (unless they invested them in shares: in this case, net of the devaluation, the gain in the three-year period exceeds 70%).

However, the dollar closed 2019 at R $ 4.01, down from R $ 4.21 in early December. The pressure on the real seems to have temporarily diminished, also thanks to the announcement of a US-China trade agreement.

For 2020, the market does not foresee a significant revaluation of the real, but economic growth – if confirmed in its proportions and made sustainable by a reliable government – could attract new and greater investments from abroad, generating a substantial income of precious currency and therefore an appreciation of the Brazilian currency.

The dollar is now valued R$ 4.06; the euro is valued R$ 4.53.

 Interest rate

  2014 2015 2016 2017 2018 2019 2020  
Nominal Interest rate (end of the períod) 11,80% 14,87% 13,75% 7,00% 6,50% 4,50% 4,50%  
Real interest (deflactor: IPCA) 4,20% 2,60% 6,91% 4,05% 2,81% 0,30%  



Although the discount rate (SELIC) is at an all-time low of 4.50% and inflation is growing again, the market expects Banco Central to keep the rate unchanged during 2020. Banco Central’s role will certainly be crucial, given that low interest rates mean on the one hand a substantial containment of public debt maintenance expenditure and on the other a stimulus to private investments, decisive factors for sustainable growth.

The Brazilian stock market (Bovespa)

As anticipated, the Brazilian stock exchange experienced a small “rush” at the end of the year, with the Ibovespa reaching a new historical maximum at 118 thousand points on January 3, 2020. The sharp decrease in nominal and real interest rates occurred in 2019 favored the shift of investments towards equities and this situation – according to the forecasts of economists surveyed in the weekly “Focus” research by Banco Central – should remain more or less unchanged in 2020. The prospects of the Brazilian stock exchange will be analyzed more in depth. detail in a future post.