At the beginning of January, deaths from Covid-19 reached the figure of 619 thousand.

The daily average of new cases continues to be under 10 thousand cases. The arrival of summer and the still low diffusion of the Omicron variant place Brazil in a better situation than the countries of the Northern hemisphere.

Brazil has reached 67% of the fully vaccinated population (two doses), corresponding to 136 million people. 76% received at least one dose. The vaccination campaign for children between 5 and 11 years old should begin in the next few days.

Inflation: the IPCA index at the end of December recorded a rate of + 10.4% on an annual basis, but was stable compared to a month earlier. Since this is an inflation generated by a lack of supply rather than by an excess of demand (see the lack of semiconductors which in the case of the automotive sector has often stopped assembly lines), with the normalization of the logistics of production and distribution of goods hopefully a slowdown in inflationary pressure.

In 2021, Brazilian exports exceeded imports for a value of 61 billion dollars, an all-time record. The international enhancement of products such as iron and soy, of which Brazil is a major exporter, played a major role in this result.

Trade balance (in billions of dollars)

Forecasts for 2022 are optimistic, even if in recent months there has been a slowdown in the growth of the prices of the main commodities. Agri-food exports, which were limited by drought problems in 2021, are expected to be record-breaking.

Thanks also to this result, Brazil’s international reserves amounted to 364.2 billion dollars, the equivalent of two years of imports. This abundant flow of dollars into Brazil should have led to a valuation of the Brazilian currency, but the opposite has happened instead. Money from exports continues to be left abroad, in more valuable and less prone to devaluation currencies. A sign of this phenomenon was seen on 30 December 2021, when the real appreciated by 2% in a single day: probably several companies, to close the 2021 financial statements, had to reduce their exposure in dollars (and then put it back together on January 3, 2022, as shown by the devaluation of the real by 1.6% on the day).

In the meeting of the Monetary Policy Committee (COPOM), which ended on 8 December 2021, Banco Central, as expected, increased the discount rate (SELIC) by 1.5%, bringing it to 9.25%. This is the seventh increase in 2021.

Public investments are down (48.3 billion reais, compared to 55.3 in 2020), the only way the government has found to cut spending and contain the deficit. With the overrun of the “spending ceiling”, approved last month through the “PEC dos precatorios”, the flow towards current expenses has increased but that towards investments has decreased: fewer schools and roads, less maintenance of the existing public assets, less money for health facilities. And the budget for 2022 foresees a further decrease to 44 billion.

The new tax amnesty for small and micro businesses, known as Refis, has been approved by parliament. Thanks to the Refis, companies can benefit from a 90% discount on the fines and default interest provided for by law. The Refis for large and medium-sized enterprises will only be voted in 2022.

The ANAC (National Civil Aviation Agency) has approved the final studies for the new airport concessions, which will transfer the management of 16 Brazilian airports, including those of Congonhas (São Paulo) and Santos Dumont (Rio de Janeiro), to private initiative. The contracts will have a duration of 30 years and it is estimated that they can generate approximately 8.6 billion reais for the state coffers. The auctions are expected to take place by mid-2022.

The news of the closure of the International Monetary Fund (IMF) office in Brazil caused a sensation. The decision was made after the Bolsonaro government, through its Minister of Economy, Paulo Guedes, asked the IMF to stop the activities of the IMF office based in Brasilia. IMF and Guedes had been in friction for some time due to the negative analyzes and forecasts made by the IMF regarding the Brazilian economy, but the straw that broke the camel’s back was the appointment of the Brazilian Ilan Goldfajn (former director of Banco Central) as Western Hemisphere director of the IMF. Goldfajn is known to have a very critical position towards the work of the Bolsonaro government in the economic sphere.

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%4,50%0,36%

The 2021 GDP forecast is still decreasing, from + 4.94% at the beginning of November to + 4.50% today.

Official 2021 GDP data will be released at the beginning of March 2022.

The forecast for 2022 is also worsening (+ 0.36%). 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%10,0%5,03%

Inflation in 2021 must close at around 10%, official data are expected.

For 2022, economists predict a sharp decline in inflation, around 5%. Commodity prices are decreasing, world logistics are starting to function normally again without generating “bottlenecks” and rising interest rates should compress consumption and demand for goods. For the first months of 2022, however, the classic increase in rates at the beginning of the year is expected (school fees, insurance, etc.).

Exchange rate R$/US$ (end of the period)3,253,253,754,015,195,575,60

The dollar closed 2021 at R$ 5.57 and is quoted today (January 5, 2021) at R$ 5.69, stable compared to a month ago (R $ 5.67). Inflation, the fiscal situation and the weakening of the economy continue to cause concern. Moreover, the presidential elections of October 2022 are approaching, which do not promise to be very peaceful and which can cause further stress on the exchange rate.

For the end of 2022 the estimate of the dollar price is R $ 5.60.

The euro closed 2022 at R $ 6.31 and its price today (January 5, 2022) is 6.42 reais.

Interest rate

Nominal Interest rate (end of the períod)13,75%7,00%6,50%4,50%2,00%9,25%11,50%
Real interest (deflactor: IPCA)6,91%4,05%2,81%0,3%-2,4%-0,75%6,47%

The SELIC discount rate closed 2021 at 9.25% (at the beginning of 2021 the forecasts were 3.00% ….).

In the first meetings of 2022, Banco Central is expected to continue the gradual growth of the discount rate, until the arrival of clear signs of a substantial weakening of inflation.

According to the economists consulted by Banco Central through the monthly Focus survey, SELIC should close 2022 at 11.50%.

If this were the case and if inflation were to settle at 5% at the end of the year, the real interest rate could reach a record level of + 6.5% per annum. Recall that the real interest rate is still in negative territory today.

The Brazilian stock market (Bovespa)

Ibovespa closed the session on January 4, 2022 at 103,513 points, -3.2% compared to the close of a month earlier (106,954 points). The decrease was -3.3% in dollars and -3.2% in euros.

The next post will be dedicated to analyzing Bovespa’s performance in 2021 and the prospects for 2022.