The storm caused by the coronavirus epidemic has also arrived in Brazil, for the moment limited mainly to the effects on the financial markets. On February 26, when the São Paulo stock exchange reopened after Carnival, the Bovespa index lost 7%; on February 27 it lost a further 2.6%. The real, already under pressure for weeks, has devalued again: the dollar is now worth around R$ 4.50, while the euro is worth R$ 5.00.

However, the first effects on the real economy are also manifesting, given that the Brazilian industry is extremely dependent on components from abroad, in particular from China and Asia in general. As in the rest of the world, a crisis on the supply side (much more difficult to manage with ordinary economic policy instruments) could have serious consequences for Brazil’s GDP.

In addition, the slowdown in the Chinese economy – if prolonged – would have a significant impact on the export of Brazilian commodities, mainly iron and its derivatives (less on agri-food products).

Still positive news, however, regarding the Brazilian public accounts. In January, a primary surplus of 44 billion reais was recorded, the result of an increase in tax revenues (+ 3.9% compared to January 2019) and a decrease in expenses (-3.3%).

The devaluation of the real against the dollar and the euro continues. The statements by the Minister of Economy, Paulo Guedes, in favor of the weakening of the Brazilian currency led to a real collapse in prices; the spread of the coronavirus then further aggravated the situation. Since the beginning of 2020, the real has devalued by 12% against the dollar and 11% against the euro.

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% 2,17%

Despite the alarming news from the coronavirus front, economists heard by Banco Central through the Focus survey maintain a forecast of 2020 GDP growth above 2%.

The government itself is reviewing its growth estimates, which are expected to be disclosed by mid-March.

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% 3,19%

The inflation estimates for 2020 are still down: at the beginning of the year it was expected at 3.6%, today we are at 3.19%. One wonders, however, until the devaluation of the real, which is significantly increasing the prices of imported products, will not show its effects on inflation. If in a few months Brazilian assets have depreciated (in dollars and euros) by at least 20%, it is unthinkable that we have no inflationary repercussions.



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 4,20

As mentioned previously, the dollar has reached R$ 4.50 in these days, but the market maintains an average forecast of R$ 4.20 for the end of 2020. And this despite the fact that Paulo Guedes himself has given explicit signals on the made to appreciate a devalued currency and declared that these exchange rates could become a “new normal”. Banco Central intervened several times on the market by buying dollars, but its main mission is to maintain the purchasing power of the currency on the domestic market and is therefore mainly guided by the inflation index, which for the moment continues to be under control.

The price of the dólar today is 4.50 reais, an all-time high. Brazilian assets are increasingly cheap for US and european investors.

 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% 4,25%
Real interest (deflactor: IPCA) 4,20% 2,60% 6,91% 4,05% 2,81% 0,30%  


Without changes, the forecast of the discount rate (SELIC) at the end of 2020, at 4.25%.

Certainly Banco Central will not intervene before better understanding the possible effects of the world economic crisis caused by the coronavirus.

The Brazilian stock market (Bovespa)

After having almost reached the threshold of 120 thousand points towards mid-January, the Bovespa dropped to 115 thousand points at the beginning of February and today it oscillates around 106/107 thousand points. Adding this loss to that of the real / dollar and real / euro exchange rates, the losses of foreign investors have been around 20%, since the coronavirus crisis began.

Like last month, the obvious suggestion is that of maximum caution regarding new investments in shares of the Brazilian stock exchange. But, when the coronavirus emergency begins to shrink, being ready to bet on Brazil could lead to significant gains.

Here are the performances of the main shares in the week of February 21-28, 2020:

Petrobras (PETR4): – 13%

Vale (VALE3): -11,6%

Itau (ITUB4): -5,8%

Bradesco (BBDC3): -7%