Luis Inacio Lula da Silva is the new President of the Republic and will remain in office until the end of 2026. In the second round of the presidential elections, held on 30 October 2022, Lula was voted by 50.9% of the voters against 49.1 % who voted for Bolsonaro.
Fears of a possible coup attempt by Bolsonaro’s loyalists have not been supported by violent or undemocratic actions, even though a group of truck drivers are blocking the main roads of Brazil in several places.
Lula will take office on January 1, 2023 and has given signs of wanting to build an executive open to the center-left political forces that supported him during the election campaign. There is much anticipation, especially regarding the appointment of the Minister of the Economy, since Lula has deliberately not clarified what the economic policy of his new government will be. The financial markets reacted positively to the result: in the sessions of October 31 and November 1, the stock market rose by 2.1% and the dollar fell by 3.4% compared to the Friday preceding the elections.
In the meeting of the Monetary Policy Committee (COPOM), which ended on October 26, 2022, Banco Central decided to keep the discount rate (SELIC) unchanged at 13.75%. It is the second consecutive meeting in which Banco Central decides not to touch SELIC. From March 2021 to date, the discount rate has gone from 2% to 13.75%. If inflation were to remain under control, it is likely that in the first months of 2023 a process of decreasing the discount rate will begin.
The unemployment rate is still decreasing, from 8.9% in August to 8.7% in September 2022. At the beginning of 2021, at the height of the pandemic, it had reached 14.7%. It is the seventh consecutive month of decline, in which the index is the lowest level since the last quarter of 2015. Average income also tends to increase: + 3.7% compared to the quarter ending in June 2022. Employment growth it is a direct reflection of the improvement in the economy, above all thanks to the increase in formal jobs, those with “carteira assinada”.
The number of defaulters is also increasing, ie people with debts with credit institutions (61%), service providers (electricity / gas / telephony, 19%), distribution companies (13%) and others (7%). In September, four out of ten Brazilians are overdue on at least one payment: an increase of 11.2% compared to a year ago. Banco Central itself admits that this is an increase related to the rise in interest rates.
Here is the trend of the main economic indicators:
GDP (Value added at market prices)
|GDP – real growth (%)||-3,3%||1,3%||1,8%||1,4%||-4,1%||4,5%||2,76%|
The GDP growth forecast for 2022 is still improving, today estimated at +2.76%.
The positive performance of the Brazilian economy is due more to internal factors (consumer stimuli, complete reopening of commercial activities, increase in tourism, etc.) than external ones (the demand for commodities and related prices are falling due to the European crisis. and the slowdown in the Chinese economy).
Inflation and real/dollar exchange
|IPCA (IBGE – %)||6,29%||2,95%||3,69%||4,20%||4,38%||10,0%||5,61%|
The year-end inflation estimate is confirmed to be down. The timely and rapid intervention of Banco Central, which began to increase the discount rate in mid-2021, reduced the inflationary pressure without causing a strong impact on economic growth. The drop in the price of oil, and therefore in transport costs, has also led to a reduction in the costs of businesses.
The forecast for 2022 is down sharply compared to a month ago, at +5.61%.
|Exchange rate R$/US$ (end of the period)||3,25||3,25||3,75||4,01||5,19||5,57||5,20|
The dollar is quoted today (November 2, 2022) at R$ 5.12, a slight decrease compared to a month ago (R$ 5.17), although subject to strong volatility due to pre-electoral political tensions (on 26 October was quoted at R$ 5.38). The appreciation of the Brazilian currency is therefore maintained compared to the historical lows of the beginning of 2021, when the dollar was quoted at R $ 5.69.
By the end of 2022, the estimate of the dollar price remains stable at R$ 5.20.
The euro is quoted today at R$ 5.06, stable compared to a month ago (R $ 5.08), but also subject to high volatility.
|Nominal Interest rate (end of the períod)||13,75%||7,00%||6,50%||4,50%||2,00%||9,25%||13,75%|
|Real interest (deflactor: IPCA)||6,91%||4,05%||2,81%||0,3%||-2,4%||-0,75%||8,14%|
The SELIC discount rate was confirmed at 13.75% per annum.
The forecast of the economists consulted by Banco Central is that there will be no further adjustments until the end of 2022.
Only in 2023, with inflation under control, should a cycle of decline in SELIC begin.
If the forecasts were to be respected, the real interest rate at the end of 2022 should reach 8.14%, a record for the last 8 years.
The Brazilian stock exchange (Bovespa)
Another positive month for Brazilian equities, which followed the performance of US stock exchanges, notably the Dow Jones and SP500 indices.
Ibovespa closed the session on November 1, 2022 at 116,929 points, + 6.3% compared to the end of October (110,037 points on September 30, 2022). Growth in the period was + 12% in dollars and + 11% in euros.
The reaction of the markets to Lula’s election has also been quite positive for the moment. Only the securities most directly subject to government influence (Petrobras and Banco do Brasil above all) have suffered a significant drop in prices, due to the removal of their possible privatization.