At the beginning of August, deaths from Covid-19 reached the figure of 558mil.
In the week ending Sunday, August 1, Brazil recorded a 24% drop in new cases compared to the previous seven days. Despite the reduction, the country continues to excel in the Americas when it comes to victims of covid-19.
The vaccination campaign (at least one dose) reached 105 million people, about 50% of the population. The strong acceleration in the months of June and July is very encouraging, even if the delta variant begins to spread also in Brazil.
In the meeting ended on 4 August 2021, Banco Central decided to increase the discount rate (SELIC) by 1%, bringing it to 5.25%. This is the fourth and largest increase in 2021 and new increases are expected in the coming months. The goal is to contain the growth of inflation, which has reached 8.6% per year.
The IMF (International Monetary Fund) increased the Brazilian GDP growth forecast from 3.7% to 5.3% in 2021, but reduced the forecast for 2022 from 2.6% to 1.9%. The nominal public deficit to GDP is expected to reach 6.3%, below the 8.3% recorded in April, and the gross public debt is expected to reach 91.8%, lower than the 98.4% reported in precedence.
Good news also from the trade balance, which recorded a positive balance of 7.4 billion dollars in July (a record in the historical series for the month of July). In the first 7 months of 2021, the surplus is 44.1 billion dollars, + 47.6% compared to the same period in 2020.
While industrial production in general is returning to pre-pandemic levels, the automotive sector is still a long way from returning to normal. In the first half of 2021, vehicle production was 21.8% lower than the 2019 data.
The decrease in the supply of semiconductors (from Asian countries) is blocking the production of several models and the three leading companies in the market, Fiat, Volkswagen and General Motors, are the most affected by the problem. ANFAVEA (Automobile Manufacturers Association) estimates that the sector has produced about 120,000 cars less than it could have. In dealerships, the waiting time for vehicle delivery is over three months.
The frosts at the end of July / beginning of August in the South and South East regions heavily affected agricultural production, from coffee to sugar to soy and maize. A significant increase in the prices of many crops is expected, which will cause further inflation tensions.
Here is the trend of the main indicators:
GDP (Value added at market prices)
|GDP – real growth (%)||-3,5%||-3,3%||1,3%||1,8%||1,4%||-4,1%||5,30%|
The 2021 GDP forecast is still growing, from + 5.18% in June to + 5.30% today. The positive economic situation, supported by a reduced fiscal deficit and the improvement in the trade balance, is also supported by the advancement of the vaccination campaign which is allowing the reopening of most economic activities, including tourism and catering.
On the strength of the good results, the government is planning an increase (also from an electoral point of view) in the value of the “Bolsa Familia”, a subsidy for the poorest families.
Inflation and real/dollar exchange
|IPCA (IBGE – %)||10,7%||6,29%||2,95%||3,69%||4,20%||4,36%||6,79%|
The 2021 inflation estimate is still growing, passing in a month from + 6.07% to +6.79.
The IPCA index of the last 12 months is now around 8.6% and represents the greatest obstacle to an economic recovery that seems to be consolidating. The action of Banco Central will be important, which has already reported a further increase in the discount rate if the inflation should remain high in the coming weeks.
|Exchange rate R$/US$ (end of the period)||3,90||3,25||3,25||3,75||4,01||5,19||5,10|
The dollar is quoted today at R$ 5.22, slightly higher than a month ago (R$ 5.09) but still much lower than three months ago (5.60).
The estimate of the dollar price for the end of 2021 is also slightly up: R $ 5.10 compared to R $ 5.04 a month ago.
The gradual increase in the discount rate (SELIC) should favor the appreciation of the real, but operators fear that the rise in inflation and possible demagogic interventions (in view of the presidential elections at the end of 2022) that could cause public spending to explode .
The euro price on August 5 was 6.17 reais, up compared to a month ago (6.04).
|Nominal Interest rate (end of the períod)||14,9%||13,8%||7,00%||6,50%||4,50%||2,00%||7,00%|
|Real interest (deflactor: IPCA)||2,60%||6,91%||4,05%||2,81%||0,30%||-2,38%||0,21%|
Expectations for SELIC at the end of the year are still increasing: 7.0% today against 6.50% a month ago and 3.00% at the beginning of the year.
In the meeting at the beginning of August, Banco Central increased the discount rate (SELIC) from 4.25% to 5.25% per annum. The market therefore expects at least two other significant increases (between 0.75% and 1%) by the end of 2021.
With these forecasts, the real interest rate (nominal rate minus inflation) should return to positive territory at the end of 2021. Today, considering inflation at 8.6% and the discount rate at 5.25%, the real interest rate is strongly negative (about -3.3%).
The Brazilian stock market (Bovespa)
Ibovespa closed the session on August 5, 2021 at 121.633 points, -4% compared to the close of a month earlier. The decrease was -6% in dollars and -6.3% in euros.
Therefore, the weakening of the Brazilian stock market continues, linked to both internal and external factors.
Domestically, there is some concern about the fiscal deficit. In recent days, the government’s proposal to pay in installments the “precatorios” (debts of the State towards individuals and companies, recognized following administrative cases and become final) for a value of 90 billion reais has aroused great concern. For many economic operators this is a real “default”, which puts into question the solvency capacity of the state.
On the external front, the difficulties of overcoming the pandemic crisis at a global level are holding back the allocation of investments in emerging countries by large institutional investors. However, Brazil and India are considered among the most promising countries in the medium and long term.
Since the onset of the coronavirus crisis, the Bovespa index has gained 7% in reais and lost 9.4% in dollars and 17% in euros.