At the beginning of December, deaths from Covid-19 reached the figure of 616 thousand.
The daily average of new cases has been under 10 thousand cases for weeks. The graphs show how Brazil has come out of the most critical phase (April-June 2021), but the emergence of the Omicron variant in the world does not allow us to let our guard down. Rio de Janeiro, for example, has decided to cancel the classic year-end celebrations on its beaches.
Brazil has reached 65% of the fully vaccinated population (two doses), corresponding to 136 million people. 75% received at least one dose.
Inflation continues to rise. At the end of November, the IPCA index recorded a rate of 10.7%, the highest in the last 6 years. With the reopening of shops, bars and restaurants and the gradual restart of the tourism sector, inflation in the service sector also tends to strengthen price growth.
Brazilian GDP data for the third quarter of 2021 show a slight decline compared to the previous quarter (-0.1%) and confirm the slowdown in the economic recovery. This is the second consecutive quarter of decline (-0.4% in the second quarter of 2021), which technically indicates a recessionary phase. The sector with the worst performance was the agri-food sector (-8%) and that of exports (-9.8%). Better services (+ 1.1%), household consumption (+ 0.9%) and government consumption (+ 0.8%); the industrial sector is stable.
The agri-food sector suffered from the closure of the soybean crop, the main Brazilian commodity, and from the negative coffee period, as well as from the generalized drought of 2021.
Unemployment is decreasing, going from 14.2% in Q2 2021 to 12.6% in Q3 2021. This is an encouraging figure, but the number of unemployed continues to be very high (around 30 million) . In addition, with the increase in informality and the decrease in the supply of work during the period of the pandemic, the average monthly wage has drastically reduced, from R $ 2,766.00 at the end of 2020 to R $ 2,459 today.
On December 2, 2021, the Senate approved the Proposed Constitutional Amendment (PEC) of the “precatorios”, which alters the conditions for the payment of debts of the Union which have become final. In practice it is a “default”, which affects the internal creditors of the Brazilian state. Thanks to the approval of this PEC, it will be possible to finance the “Auxilio Brasil” social program, promoted by the Bolsonaro government to replace the Bolsa Familia of the era of Lula and Dilma (PT).
Auxilio Brasil provides for the payment of R $ 400.00 per month to approximately 17 million people in need.
Since this is a permanent program, Brazilian law mandatorily provides that a source of funding that is also permanent is provided: for 2022 the funding will come from the money “saved” on the payment of precatorios, but in subsequent years?
In the next meeting of the Monetary Policy Committee (COPOM), which will end on 8 December 2021, Banco Central will in all likelihood increase the discount rate (SELIC) by 1.5%, bringing it to 9.25%. This would be the seventh increase in 2021.
The water crisis is still improving, thanks to the spring rains. The south-east and central-west basins are operating at 20% of their capacity.
Here is the trend of the main indicators:
GDP (Value added at market prices)
|GDP – real growth (%)||-3,3%||1,3%||1,8%||1,4%||-4,1%||4,71%||0,51%|
The 2021 GDP forecast is slightly down, from + 4.94% at the beginning of November to + 4.71% today.
Growth in 2021 will not be enough to offset the collapse in Brazilian GDP in 2020, the worst year of the pandemic.
The forecast for 2022 also worsens (+ 0.51%). Given the fiscal situation and the trend of rising interest rates, some economists already predict a possible recession in 2022.
Inflation and real/dollar exchange
|IPCA (IBGE – %)||6,29%||2,95%||3,69%||4,20%||4,38%||10,2%||5,02%|
The 2021 inflation estimate is still growing, passing in a month from + 9.17% to + 10.17%.
Thanks to the subsequent interventions of Banco Central and the recessionary scenario, however, inflation should begin to decline in the coming months and close 2022 at 5%.
|Exchange rate R$/US$ (end of the period)||3,25||3,25||3,75||4,01||5,19||5,56||5,55|
The dollar is quoted today (December 6, 2021) at R $ 5.69, up from a month ago (R $ 5.59).
Inflation, the fiscal situation and the weakening of the economy continue to cause concern. The shift towards safer foreign assets is therefore growing. I repeat what I wrote the previous month: “It is widespread opinion among analysts that, given the current Brazilian economic situation, the real has depreciated excessively. However, the uncertainties of an election year in which, as it was easy to predict, Bolsonaro will do everything to be re-elected, even if this will mean chaos on the markets and a recessionary trend. The expected “rally” of the real will perhaps have to wait a few months or perhaps the outcome of the elections at the end of 2022. “
The estimate of the dollar price for the end of 2021 is up: R $ 5.56 compared to R $ 5.50 a month ago.
The euro price on 6 December was 6.43 reais, a slight decrease compared to a month ago (6.49).
However, this is a decline determined by the devaluation of the euro against the dollar and a strengthening of the real.
|Nominal Interest rate (end of the períod)||13,75%||7,00%||6,50%||4,50%||2,00%||9,25%||11,25%|
|Real interest (deflactor: IPCA)||6,91%||4,05%||2,81%||0,30%||-2,38%||-0,93%||6,23%|
The Copom meeting will be on 7-8 December 2021 and everything indicates that there will be a growth of SELIC from 7.75% to 9.25% (+ 1.25%).
The real interest rate (nominal rate minus inflation) will enter negative territory at the end of 2021, less than at the end of 2020.
For 2022, the market expects a year-end SELIC of 11.25%, although the increases should be concentrated in the first months of 2022. If inflation, as Banco Central predicts, were to return under control soon, there could be there is also room for a gradual decrease in the discount rate starting from the last quarter of the year.
2022 will be the year of the presidential election and significant turbulence is expected, so anything can really happen.
The Brazilian stock market (Bovespa)
Ibovespa closed the session on 6 December 2021 at 106,954 points, + 2% compared to the close of a month earlier. The growth was + 0.5% in dollars and + 2.9% in euros.
There were mainly two factors that caused a certain pessimism on world markets: the discovery of the Omicron variant of the coronavirus in South Africa (which could lead to new closures and therefore to a contraction of the economy) and the signs of a rise in interest rates by the American Fed, to curb inflation.
The Brazilian stock exchange also reacted negatively, even if on the domestic front the approval of the PEC of the “precatorios” put an end to an uncertainty that was undermining the confidence of economic operators. As I have repeated many times, Brazilian assets are still heavily depreciated and investment opportunities abound.
To get an idea, the Brazilian stock exchange presents the second worst world performance in 2021, losing only compared to the Venezuelan stock exchange:
|Change in local currency in 2021|
|HSI Hong Kong||-13,8%|
|FTSE MIB Italia||+16,1%|
|MOEX Russia||+ 18,3%|
|NIFTI 50 India||+ 21,5%|