At the beginning of March, deaths from Covid-19 reached the figure of 650 thousand.

The Omicron variant begins to lose strength and the daily average of new cases has dropped to 75,000 units. The level of employment in intensive care units also falls and in no state exceeds 80%.

73% of the population is fully vaccinated (two doses); 84% received at least one dose. The vaccination campaign for children between the ages of 5 and 11 continues.

Inflation continues to grow, which at the end of February recorded an annual +10.76%. Despite the increase in the discount rate, the recent devaluation of the dollar against the real and a very modest growth in economic activity, prices continue to rise. The increase in commodity prices (oil, iron minerals and agricultural products), while improving the performance of Brazil’s foreign trade, on the other hand pushes up prices in the domestic market.

Any escalation of the conflict between Russia and Ukraine could further increase commodity prices, but should not have a particularly significant impact on Brazilian trade. In 2021, Russia accounted for only 0.6% of Brazilian exports (US $ 1.7 billion per year, especially in the agri-food sector); the total imports are about US $ 5.6 billion, of which 60% in fertilizers and fertilizers.

During Bolsonaro’s untimely diplomatic trip to Russia last February, the main theme was precisely the strengthening of trade relations between the two countries.

According to the analysis of the FGV / Ibre study center, in 2022 the industrial sector should record a new decline, the 7th in the last ten years. To try to counter this process of deindustrialisation (which is the one that suffers most from the rise in interest rates), the government has decreed a 25% reduction in the IPI (Tax on Industrial Products), with the only exception of the the tobacco sector, which continues to pay an IPI of 300%. According to several economists, however, the problems of the industrial sector are much more complex and cannot be solved with a simple tax cut (which will cause a “hole” of about 20 billion reais in the state coffers in 2022 alone). An effective tax reform that puts an end to the Brazilian “tax asylum” is certainly very urgent.

However, public accounts improve, which in January 2022 showed a surplus of R$ 101.8 billion (before interest costs on public debt).

Despite these good results, according to estimates by the IFI (Instituiçao Fiscal Independente del Senato), public debt could reach 84.8% of GDP by the end of 2022.

The drought that is affecting the states of southern Brazil and Mato Grosso do Sul has caused a loss of about 25 million tons of agricultural products, mainly soy, maize and rice. The forecast is that the 2022 harvest will reach 268.2 million tons instead of the 291 million expected, a value in any case higher than that of 2021 (252.7 million tons).

The next auction of power transmission lines has been announced, scheduled for June 30, 2022, which envisages the construction of 5,291 kilometers of new networks throughout the country, with a total investment of R $ 15.293 billion. The concessions, divided into 13 lots, will have a duration of 30 years, renewable for another 30. The lack of transmission lines is a chronic problem in the electricity sector and, in recent years, has caused billions of losses, with a very high number of wind farms and hydroelectric plants ready, but without the possibility of injecting energy into the national electricity circuit.

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%0,30%

The 2022 GDP growth forecast is stable, estimated at + 0.30%, same forecast by the IMF.

High inflation and the sharp rise in the discount rate tend to depress household consumption and business investments and the trend continues to be that of a worsening of the situation in the course of 2022.

Inflation and real/dollar exchange 

IPCA (IBGE – %)6,29%2,95%3,69%4,20%4,38%10,0%5,60%

Inflation continues to cause concern and the chaotic international situation increases the pressure on prices. Drought in the south and central-west and torrential rains in the north-east are also causing increases in the prices of agricultural products. The forecast for 2022 is slightly up compared to a month ago, at +5.60%.

Exchange rate R$/US$ (end of the period)3,253,253,754,015,195,575,50

The dollar is quoted today (March 3, 2022) at R$ 5.11, still falling sharply as in January. At the beginning of the year it was quoted at R$ 5.69.

The real was the currency that appreciated the most against the dollar in 2022 (+10%).

Not even the Russian-Ukrainian crisis stopped the real’s run, with a strong inflow of hard currency.

The flow of speculative investments into Brazil continues to be high. High interest rates and cheap assets attract foreign capital, which – among other things – is denied access to the Russian market.

By the end of 2022, the estimated value of the dollar continues to rise from R$ 5.60 to R$ 5.50; therefore operators expect a significant revaluation of it during the year.

The euro is quoted today at R$ 5.68, down sharply compared to the beginning of the year (R$ 6.42), -12%.

Interest rate

Nominal Interest rate (end of the períod)13,75%7,00%6,50%4,50%2,00%9,25%12,25%
Real interest (deflactor: IPCA)6,91%4,05%2,81%0,3%-2,4%-0,75%6,50%

The SELIC discount rate is now 10.75% per annum.

In the CoPoM meeting of 15/16 March 2022, a new increase will certainly be decided, between 1% and 1.5%. The gradual growth of the discount rate will continue until the arrival of clear signs of weakening inflation.

According to the economists consulted by Banco Central through the monthly Focus research, SELIC should close 2022 at 12.25% (+0.50% compared to a month ago).

If this were the case and if inflation were to settle at 5.5% at the end of the year, the real interest rate could reach a record level of +6.75% per year. We recall that with the increase to 10.75%, the real interest rate is now equal to zero.

The Brazilian stock market (Bovespa)

Ibovespa closed the session on March 2, 2022 at 115,173, +3.1% compared to the close of a month earlier (111,696 points on February 3, 2022). The growth was +7% in dollars and +10% in euros.

The flow of liquidity from abroad is still very strong.

Even in this period of great uncertainty due to the aggression of Ukraine, the Brazilian stock exchange, together with its currency, not only held up but managed to grow. Thanks above all to commodities (oil, iron ores, cereals, etc.), whose prices have skyrocketed.

We recall that the Russian stock market is in sharp decline and, thanks to the sanctions of Western countries, it has lost access to foreign capital. For Brazil, therefore, it is a lesser competitor among emerging markets.

The uncertainty regarding the progress of the international crisis prevents us from making any predictions and concerns about inflation, the increase in the public deficit, the tensions that will come from the presidential election campaign continue.

So, a lot of prudence and still the preference for defensive and protective investments.