At the beginning of September, deaths from Covid-19 reached the figure of 584 thousand.

In recent days, the daily average of deaths has steadily decreased, as has the number of new cases. Brazil seems to have emerged from the most critical phase (April-June 2021), but still has a strong notable circulation of the virus.

The vaccination campaign (at least one dose) reached 139 million people, about 66% of the population. 32% (67 million people) are fully vaccinated. Brazil is also slowly emerging from the pandemic, but the delta variant – more contagious – is also circulating in Brazil.

The second quarter GDP data, published at the beginning of September, revealed a deceleration of the economic recovery: -0.1% compared to the previous quarter. This is not a significant fall, but it does highlight a certain fragility of the Brazilian economy, which had grown vigorously in the previous three quarters. Compared to the same quarter of 2020 (the most affected by the effects of the pandemic), growth was 12.4%.

Inflation continues to grow and is now approaching 9% per annum. The growth in the price of electricity was the main cause of this increase, both for the direct increase in bills and for the higher production costs of industrial goods. The price of fuels is also growing, also responsible for the increase in the costs of transporting products. Gasoline in several states has already reached and exceeded the price of R $ 7.00 per liter. In 2021 alone, the growth in the price of gasoline was 32%.

At the beginning of September, the Chamber of Deputies approved the income tax reform. Due to several amendments, the initial proposal presented by the government’s economic team has undergone changes, which have led to a drastic reduction in tax revenues expected for the future. The reform will now have to be discussed by the Senate and further changes are expected to restore a greater balance. The market reacted with concern to the possibility of an increase in the public deficit potentially caused by the reform, with the stock market losing more than 2% in the session on Thursday 2 September.

On the political front, tensions are increasing between Bolsonaro and some ministers of the STF (Supreme Federal Court). Economic operators – first and foremost entrepreneurs and investors – are expressing a just concern about the threats to the country’s institutional and democratic stability. The approach of the presidential elections of 2022 (just over a year away) risks creating a dangerous polarization, which can jeopardize the economic recovery and the return of national and international investments.

The next meeting of Banco Central’s Monetary Policy Committee, scheduled for 21-22 September 2021, should lead to a significant new increase in the discount rate (SELIC) today to 5.25%. Growth of 1.5% is possible, with the aim of containing the growth of inflation.

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%  5,15%

The 2021 GDP forecast is slightly down, from +5.30% at the beginning of August to +5.15% today. The performance of 2021 will however remain positive, even if the economy does not have the same momentum as at the beginning of the year. Various factors weighed heavily: the water crisis, the drought that hit crops such as maize, the lack of semi-finished products in the industrial chain and the stagnation of consumption, also due to growing unemployment. These are cyclical and therefore temporary factors and it is therefore hoped that the situation will gradually improve in the coming months.

Inflation and real/dollar exchange 

IPCA (IBGE – %)10,7%6,29%2,95%3,69%4,20%4,36%7,76% 

The 2021 inflation estimate is still growing, passing in a month from + 6.79% to +7.76.

The HICP index of the last 12 months is approaching 9%. The discontent of the population is growing, especially among the poorest families who are seeing their already meager income erode. Drought, water crisis, rising commodity prices and devalued real are the main causes.

Once again, the action of Banco Central will be important in the coming months.

Exchange rate R$/US$ (end of the period)3,903,253,253,754,015,195,17 

The dollar is quoted today at R$ 5.18, practically stable compared to a month ago (R$ 5.22) but still at much lower levels than four months ago (5.60).

The estimate of the dollar price for the end of 2021 is slightly up: R$ 5.17 compared to R$ 5.10 a month ago.

The gradual increase in the discount rate (SELIC) should favor the appreciation of the real, but operators fear that the growth of inflation and possible demagogic interventions (in view of the presidential elections at the end of 2022) could cause public spending to explode.

The price of the euro on September 6 was 6.14 reais, stable compared to a month ago (6,17).

Interest rate

Nominal Interest rate (end of the períod)14,9%13,8%7,00%6,50%4,50%2,00%7,65% 
Real interest (deflactor: IPCA)2,60%6,91%4,05%2,81%0,30%  -2,38%  -0,11% 

Expectations for SELIC at the end of the year are still increasing: 7.65% today against 7.0% a month ago and 3.00% at the beginning of the year.

With inflation on the rise, Banco Central will probably have to revise its policy regarding the increase in the discount rate (SELIC). Strong signals are needed to contain the loss of purchasing power of the currency, without however stifling the recovery of productive investments.

With these forecasts, the real interest rate (nominal rate minus inflation) returned to negative territory at the end of 2021. Today, considering inflation at 9% and the discount rate at 5.25%, the real interest rate is strongly negative (about -3.75%).

The Brazilian stock market (Bovespa)

Ibovespa closed the session on 6 September 2021 at 117,869 points, -4% compared to the close of a month earlier. The decrease was -3% in dollars and -4% in euros.

Compared to the maximum reached on 7 June 2021 (130,776 points), the drop is 10%.

Uncertainties on the fiscal front continue to weigh heavily on the performance of the Brazilian stock exchange and the tensions between the various federal institutions do not help to improve the political climate.

Even the proposed law that envisages taxing the distribution of dividends (at 15%, while previously they were exempt from taxes, already paid on corporate profits) has contributed to the discontent of the market.

There is also great concern over the government’s proposal to pay in installments the “precatorios” (debts of the State towards private individuals and companies, recognized following administrative cases and legally binding) for a value of 90 billion reais. We recall that for many economic operators this is a real “default”, which puts the state’s ability to solvency into question.