The coronavirus pandemic continues to be a protagonist also in Brazil, with about 225 thousand deaths and where new dangerous variants are circulating. In Manaus, where one of these variants is believed to have arisen, the lack of oxygen cylinders for ICU patients has resulted in the collapse of health system.

The good news comes from the start of the vaccination campaign, which to date has reached two million people, about 1% of the population.

A very politically significant fact was the election of the Presidents of the Chamber and Senate, which took place on February 1, 2021.

The new president of the Chamber of Deputies is Arthur Lira (PP), that of the Senate is Rodrigo Pacheco (DEM), both Centrão” (formed by PSD, PP, PL, PROS, MDB, PTB, PR and Solidariedade) and by president of the republic, Jair Bolsonaro supported by the so-called “. This is a political victory for Bolsonaro, who however becomes increasingly hostage to a political group known for selling its support at a high price (posts, amendments, etc.).

With this new leadership of the parliament, the forecast is that in the coming months priority will be given to tax and administrative reform, but a reshuffle in the government is also planned to give space (and therefore seats) to Bolsonaro’s new allies.

In its first meeting in 2021, Banco Central kept the discount rate (SELIC) at 2%, but signaled possible growth in the coming months. Inflation is growing and already in the first months of 2021, despite the economic recovery is still precarious, SELIC could start to grow again.

With the second wave of the pandemic in full swing and the vaccination plan overdue, the “auxilio emergencial” will be probably extended to support the most needy families. Economy minister Paulo Guedes himself, who has hitherto opposed the prolongation of this benefit, has given signals in this sense. Given the very critical fiscal situation, however, Guedes’ intention is to subordinate the new “auxilio emergencial” to the rapid approval of measures to contain public spending by Parliament. It will therefore be the first test of the new alliance between executive and legislative power.

Speaking of the fiscal crisis, 2020 federal tax revenues fell by 6.9% compared to 2019, the worst result in 10 years. Even if the state deficit did not exceed 90% of GDP in 2020 (the most pessimistic forecasts were around 100%), it is certainly necessary to stop (or at least sharply decrease) its growth trajectory. Unlike the more industrialized countries, Brazil does not have the financial bases and a level of savings that allow it to sustain very serious deficits.

On the corporate front, two news stands out: the closure of the Ford plants in Brazil and the resignation of the CEO of Eletrobras. Regarding Ford, I refer to the post at the beginning of January:

The resignation of Wilson Ferreira, CEO of Eletrobras for five years, is yet another sign of the government’s unwillingness (probably added to the inability) to carry out the privatization plan, one of the flagships of Bolsonaro’s election campaign. It can now be said that the liberal agenda of which Paulo Guedes is the main supporter has now been replaced by a more conservative one, more suited to Bolsonaro’s populist profile.

Good news instead from the agricultural sector, a bulwark of the Brazilian economy for years. In 2021, its turnover is forecast to be 10.1% higher than in 2020. The result should be guaranteed by the four Brazilian agricultural superstars: soy, corn, coffee and cotton, which represent about 83% of the entire value of agricultural production.

Here is the trend of the main indicators:

GDP (Value added at market prices)

GDP – real growth (%)-3,5%-3,3%1,0%1,1%1,17%-4,4%3,50%

The GDP growth estimate in 2021 is slightly up: from + 3.40% at the beginning of the year to + 3.50% today.

it is increasingly likely that the provision of the “auxilio emergencial” will continue, which should allow household consumption to remain stable.

The unknown factor remains linked to the fiscal deficit and its financing, the government’s main challenge in 2021.

Inflation and real/dollar exchange 

IPCA (IBGE – %)10,7%6,29%2,95%3,69%4,20%4,36%3,53% 

The 2021 inflation estimate is growing, passing by + 3.32% and 3.53% in one month.

The government is trying to control the price of fuel, also to contain the discontent of the truck drivers, who threaten the same kind of strike that in 2018 brought Brazil to its knees. The price of gasoline in several cities has exceeded 5 reais per liter, very high by Brazilian parameters.

Inflation can also become a problem for the government, especially in a period with unemployment that has exceeded 14% of the workforce.

Exchange rate R$/US$ (end of the period)3,903,253,253,754,015,195,01 

The dollar is quoted today at R$ 5.35, slightly higher than a month ago (R$ 5.30).

On the other hand, the estimate of the dollar price for the end of 2021, which is around R $ 5.00, is stable.

2020 was a year of strong devaluation of the real and several economic operators expect its revaluation in the course of 2021. BNP Paribas expects the dollar to close 2021 quoted at R$ 4.25. Much, however, will depend on the progress of the fiscal deficit and the approval of the reforms by Parliament.

The euro price today is 6.43 reais, down compared to a month ago (6.53).

Interest rate

Nominal Interest rate (end of the períod)14,9%13,8%7,00%6,50%4,50%2,00%3,50% 
Real interest (deflactor: IPCA)2,60%6,91%4,05%2,81%0,30%  -2,38%  -0,03% 

The discount rate (SELIC) continues stable at 2.00%, but expectations for SELIC at the end of the year have changed: 3.50% today against 3% a month ago.

Inflation does not stop rising and Banco Central has signaled the possibility of starting the path of increasing the discount rate earlier than expected. From this perspective, the real interest rate would return to zero after spending several months in negative territory.

The Brazilian stock market (Bovespa)

After reaching 125 thousand points on January 8, 2021, the Brazilian stock exchange has struck a series of negative sessions and its index is today (February 2) around 118 thousand points.

In January, the flow of investments to the Brazilian stock exchange from abroad increased, amounting to about 23 billion reais (in the last quarter of 2020 had reached 56 billion reais).

With the election of House and Senate Speakers aligned with the Government, the probability of a more rapid approval of the reforms increases and that the new “auxilio emergencial” will not have an excessive impact on the fiscal deficit. In this scenario, and if the vaccination plan finally gains momentum, the Brazilian stock exchange could have an important performance in the first months of 2021.

Since the onset of the coronavirus crisis, the Bovespa index has gained 3% in reais and lost 17% in dollars and 25% in euros.