The coronavirus pandemic is improving markedly in Brazil. Vaccination coverage is high and the number of deaths is steadily below 100 per day. Winter is approaching, hopefully without damaging consequences on the spread of the virus, given that the use of masks is now mandatory indoors only in some situations (for example on public transport).
In the meeting of the Monetary Policy Committee (COPOM), which ended on May 4, 2022, Banco Central again increased the discount rate (SELIC) by 1%, bringing it to 12.75%. The intervention of Banco Central therefore continues to try to contain the inflation rate, which is still well above 10% per annum. Banco Central is likely to continue to increase the discount rate in the coming months, which could reach close to 14% by the end of 2022.
Inflation is still growing, which in April 2022 marked a + 1.73% and rises to + 12.03% on an annual basis. It was an increase already predicted by Banco Central and should represent the peak of inflation. No significant increases in fuel prices are expected in May, while energy prices are even expected to decline, thanks to the end of the drought. The prices of commodities are always on the rise, but the revaluation of the real tends to lower the prices of imported products (even if no significant effects are yet seen on the consumer market).
The official figure relating to GDP 2021 was released, up by 4.6% compared to 2020. This is a significant increase, which however comes after a decrease of -4.1% in 2020, a year characterized by the strong impact of pandemic.
It is interesting to observe the contribution of the various macro sectors to the growth / decrease in GDP in recent years, as shown in the table below.
The service sector is on the rise (worth around 70% of GDP), which grew by 4.7%. The reopenings have favored above all trade, catering and tourism. Strong growth in the communication and information segment (+ 12.3%).
The industrial sector recorded a growth of 4.5%. In strong growth, after a terrible 2020, the construction sector (+ 9.7%). The industrial transformation segment (automotive, industrial machinery, metallurgy) is also growing, with + 4.5%, while that related to energy is stable, especially due to the long period of drought.
The agri-food sector, which had saved the Brazilian PIB in 2020, is slightly down. It decreased by 0.2% due to drought and frosts, which partially compromised production.
Despite the annual increase in soybean production (11.0%), important crops recorded a reduction in production and a loss of productivity, such as sugar cane (-10.1%), corn (-15.0%). %) and coffee (-21.1%).
Household consumption also grew, + 3.6%, thanks to the increase in employment and the provision of the “auxilio emergencial” to the most needy families.
Government consumption is also growing, + 2.0% after a 2020 penalized by the closure of schools, universities, museums and parks.
Investments rose sharply (FBCF in the table): + 17.2%, favored by construction – down the previous year – and by the internal production of capital goods.
|Annual GDP trend||-3,3%||1,3%||1,8%||1,4%||-4,1%||4,6%|
|FBCF (*) – Gross capital formation||-12,1%||-2,6%||5,2%||3,4%||-0.8%||17,2%|
(*) The FBCF measures how much companies have increased their capital goods, ie those goods that are used to produce other goods (machinery, equipment and construction materials, in short). This is an important value because it highlights the extent to which a country’s production capacity is increasing or decreasing.
The International Monetary Fund (IMF) has increased the Brazilian GDP growth forecast for 2022, taking it from + 0.3% to + 0.8%. However, the figure is still well below the world average growth, forecast at + 3.6%.
The fiscal situation is improving, thanks to record revenues in March 2022 of 164.1 billion reais. This is the best figure for the month of March in the time series, which began in 1995.
This is an increase of 6.92% compared to the same month in 2021, net of inflation. Growth is mainly driven by the commodities sector, a major player in the early months of 2022.
The first three months of the year closed, from a fiscal point of view, with a surplus of 49.1 billion reais: this is the best result of the first quarter since 2012. According to the government forecasts, 2022 should end with a fiscal deficit of 46.9 billion reais, well below the 170 billion ceiling envisaged in the budget law.
From an international point of view, the Russia-Ukraine conflict and the ongoing lockdown in Shanghai are having strong repercussions on logistics chains, so much so that Volkswagen and Mercedes-Benz paralyzed production in mid-April due to a lack of semiconductors. This supply shock is one of the reasons that are causing the rise in prices, as well as curbing the country’s economic activity.
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%||0,70%|
The GDP growth forecast for 2022 still rises slightly, estimated today at + 0.70%. The commodities boom and the improvement in the expected result of the trade balance are improving the prospects of a 2022 destined to stagnate.
Inflation and real/dollar exchange
|IPCA (IBGE – %)||6,29%||2,95%||3,69%||4,20%||4,38%||10,0%||7,89%|
Inflation is always on the rise, mainly due to the international situation, which pushes up the prices of raw materials. From May, according to forecasts by Banco Central, inflationary tensions should ease, but the unknown factor of the Russia-Ukraine war and the Chinese lockdown remains.
The forecast for 2022 is growing strongly compared to a month ago, at + 7.89%.
|Exchange rate R$/US$ (end of the period)||3,25||3,25||3,75||4,01||5,19||5,57||5,00|
The dollar is quoted today (May 5, 2022) at R $ 4,90, up from a month ago but still sharply down from the all-time high of early 2021, when it was quoted at R $ 5.69.
With the forecast of an increase in US interest rates, which rose by half a percentage point yesterday, May 4), in April there was an outflow of speculative capital. With the narrowing spread and a favorable exchange rate, some large investors have decided to make and bring their investments back to the US.
By the end of 2022, the estimate of the dollar price went from R $ 5.25 to R $ 5.00, but – if the FED were to confirm a policy of accelerating rate growth – it is likely that this forecast will be revised towards the top.
The euro is quoted today at R $ 5,20, up compared to a month ago, but still far below the price at the beginning of the year (R $ 6.42). It should be remembered that during 2022 the euro underwent a devaluation of 7% against the dollar.
|Nominal Interest rate (end of the períod)||13,75%||7,00%||6,50%||4,50%||2,00%||9,25%||13,25%|
|Real interest (deflactor: IPCA)||6,91%||4,05%||2,81%||0,3%||-2,4%||-0,75%||5,36%|
The SELIC discount rate is now 12.75% per annum.
In the CoPoM meeting of 4/5 May 2022 a new increase of 1% was decided and at least a new increase is expected by the end of the year, with the arrival of clear signs of weakening inflation.
According to economists consulted by Banco Central through the monthly Focus research, SELIC should close 2022 at 13.25% (+ 0.25% compared to a month ago).
The Brazilian stock market (Bovespa)
Ibovespa closed the session on May 4, 2022 at 108,343, -8.8% compared to the close at the beginning of April (118,862 points on April 7, 2022). The decline in the period was -12% in dollars and -10% in euros.
The Brazilian stock exchange has followed exactly the decline of the Nasdaq, the US index most affected by the now planned increase in the discount rate by the Federal Reserve.
After three months of growth, April was marked by strong gains on the Brazilian stock exchange. Foreign investors pocketed part of the accumulated profits, also taking advantage of the favorable exchange rate.
After the dovish announcement by Jerome Powell, who ruled out a future increase of 750 points in the interest rate by the Fed on May 4, it is possible that – in the short term – the Brazilian stock market will also benefit from a greater flow of liquidity towards variable income investments.