At the beginning of April, deaths from Covid-19 reached the figure of 660 thousand.

The Omicron variant is losing more and more strength and the daily average of new cases has dropped to 26 thousand units.

75.5% of the population is fully vaccinated (two doses); 85% received at least one dose. In the State of Sao Paulo the percentage rises to 90% and in the capital it is close to 100%.

In Sao Paulo, the obligation to use the mask is now limited to public transport; in private buildings, shops and shopping centers its use is no longer mandatory.

In the meeting of the Monetary Policy Committee (COPOM), which ended on March 16, 2022, Banco Central again increased the discount rate (SELIC) by 1%, bringing it to 11.75%. The intervention of Banco Central therefore continues as planned to try to contain the inflation rate, still above 10% per annum. Banco Central has given signals that it intends to continue with the increase in the discount rate, which is expected to rise by another 1% at the next COPOM meeting in May 2022.

Inflation is on the rise, which in March 2022 marked a +1.62% and rises to +11.30% on an annual basis. According to Banco Central, the peak should arrive in April 2022, and then begin a gradual decrease. The prices of commodities are constantly growing and push up prices in the domestic market. The significant revaluation of the real tends to lower the prices of imported products, but no effects on the consumer market are yet to be seen.

Banco Central has already stated that, for the second consecutive year, it will not be able to keep inflation below the maximum limit of its half (3.5%, with a tolerance range of 1.5% more or less). The latest estimate indicates that the IPCA index should be 7.1% in 2022 and 3.40% in 2023.

Unemployment decreases, from 12.1% in the fourth quarter of 2021 to 11.2% in the first quarter of 2022. However, there are still about 12 million unemployed and, a not negligible and worrying figure, the average income of the employed fell in a year of 10%. Those who left the labor market during the pandemic, when they return, are forced to accept a lower remuneration, even for the same employment.

The conflict between Russia and Ukraine continues to have a relatively limited impact on the Brazilian economy, which indeed benefits from rising commodity prices, of which it is a net exporter.

The Secretariat for Economic Policy (Ministry of Economy) has revised downward the growth estimates for 2022 GDP: from + 2.2% to + 1.5%.

Thanks to the boom in commodity prices, Brazilian exports could increase by US $ 53 billion in 2022, bringing the trade balance surplus (exports – imports) to a record US $ 70 billion. Positive news for the growth of hard currency entering the country, which should help support the value of the Brazilian currency.

On March 28, 2022, President Jair Bolsonaro resigned the president of Petrobras, ex-general Joaquim Silva and Luna, after just one year in office. The resignation comes after a long period of rising fuel prices, caused by war between Russia and Ukraine and by the alignment of domestic prices with those of the international market. Pressed by public discontent, Bolsonaro pressured Petrobras management to lessen the impact of the price hikes, but was unsuccessful. Adriano Pires was appointed in place of Silva and Luna, a name appreciated by the market, but he gave up immediately afterwards due to a conflict of interest. The new name proposed by the Minister of Energy is that of José Mauro Ferreira Coelho, which will however have to be approved by the shareholders’ meeting of Petrobras, scheduled for April 13, 2022.

On March 31, the deadline for establishing the incompatibility of mandates between those who want to run for the elections of October 2022 (Presidency of the Republic, Chamber of Deputies and Senate) and occupy government positions expired. Ten of the twenty-two ministers of the Bolsonaro government will leave office to run for the House or the Senate. Among them, the Minister of Education, Milton Ribeiro, accused in recent weeks of being involved in a corruption scheme that had as protagonists the “pastors” of evangelical churches close to Bolsonaro and which aimed to obtain “illicit advantages” in exchange for release of money for schools.

Sergio Moro, hero of the Lava-Jato operation and pre-candidate for the Presidency of the Republic, has announced his renunciation of the presidential race and that he wants to compete for a (safer) polling station in the Chamber of Deputies.

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%0,50%

The GDP growth forecast for 2022 rises slightly, estimated today at + 0.50%. The economic climate has improved slightly, thanks above all to the commodities boom and the growth prospects of the expected result of the trade balance.

Inflation and real/dollar exchange 

IPCA (IBGE – %)6,29%2,95%3,69%4,20%4,38%10,0%6,86%

Inflation continues to cause concern and the chaotic international situation increases the pressure on prices. The appreciation of the real and the improvement in the water situation (which should lead to an improvement in electricity tariffs) have not yet led to an improvement in the 2022 inflation forecasts, but the situation should begin to improve around May.

The forecast for 2022 is growing strongly compared to a month ago, at +6.86%.

Exchange rate R$/US$ (end of the period)3,253,253,754,015,195,575,25

The dollar is quoted today (March 7, 2022) at R$ 4.74, still falling sharply. At the beginning of the year it was quoted at R$ 5.69.

In 2022, the real was the currency that was most valued against the dollar in 2022 (+ 16%).

The flow of speculative investments into Brazil continues to be high. High interest rates and cheap assets continue to attract foreign capital.

By the end of 2022, the estimate of the dollar price went from R$ 5.50 to R$ 5.25; therefore operators expect a significant revaluation of the dollar during the year.

The euro is quoted today at R$ 5.15, down sharply compared to the beginning of the year (R$ 6.42), -20%.

Interest rate

Nominal Interest rate (end of the períod)13,75%7,00%6,50%4,50%2,00%9,25%13,00%
Real interest (deflactor: IPCA)6,91%4,05%2,81%0,3%-2,4%-0,75%6,14%

The SELIC discount rate is now 11.75% per annum.

In the CoPoM meeting of 15/16 March 2022 a new increase of 1% was decided and a further increase is expected for May 2022. The gradual increase in the discount rate will continue until clear signs of weakening inflation arrive.

According to the economists consulted by Banco Central through the monthly Focus research, SELIC should close 2022 at 13.00% (+ 0.75% compared to a month ago).

Even if 2022 inflation were to exceed, as expected, the maximum ceiling of 5% and settle at around 7/8%, the real interest rate would be very interesting, around 6% per annum.

The Brazilian stock market (Bovespa)

Ibovespa closed the session on April 7, 2022 at 118,862, + 3.2% compared to the close at the beginning of March (115,166 points on March 3, 2022). Growth in the period was +9.5% in dollars and +11.2% in euros.

Brazil appears to have returned to being one of the favorite countries of international investors. In the first three months of 2022, the net balance (income – expenditure) relating to foreign investors only on the Brazilian stock exchange was almost 64 billion reais, more than half the figure for the whole of 2021 (104 billion reais).

Thanks to the simultaneous enhancement of the real, foreign investors who invested in Brazilian shares at the beginning of the year are reporting big gains: considering the Bovespa index, + 37% in dollars and + 42% in euros.

In one of the next posts we will analyze this spectacular performance and the prospects for the coming months.