At the meeting of the Monetary Policy Committee (COPOM), which ended on 3 May 2023, the Banco Central once again decided to keep the discount rate (SELIC) unchanged at 13.75%. It is the fifth consecutive meeting in which the SELIC remains unchanged. From March 2021 to today, the discount rate has gone from 2% to 13.75%. So, despite strong political pressure from the government and the PT to start a gradual decline in the SELIC, the BC is keeping the discount rate high and showing no signs of wanting to cut rates very quickly. There are those who expect a first “cut” in August 2023, but those who see a first cut only at the end of the year are already on the rise.
On the occasion of Labor Day on May 1, the government announced the new value of the minimum wage, which goes from R$ 1302.00 to R$ 1320.00, an increase well below annual inflation. The minimum ceiling for the exemption from paying income tax also changes: those who earn less than R$ 2,640.00 a month will not have to pay any direct taxes.
Inflation recorded at the end of April was +4.16%, a sharp decrease compared to 5.36% in March and the lowest level since October 2020. The prices of food products decreased, especially meat (-3 .68% since the beginning of the year), while the prices of air transport, petrol and the services sector are still growing (-7.6% in the last 12 months).
Unemployment is still growing: In the quarter January-March 2023 the unemployment rate was 8.8%, against 7.9%, 4% in the quarter October-December 2022. Despite this deterioration, the level of employment is much lower than that recorded during the 2015-2016 recession (around 13%) and that of the pandemic period (15%). However, this is a sign of the cooling of the economy, which travels on a growth rate of only +1% per year.
Positive news comes from foreign direct investment (FDI). According to OECD data, in 2022 they increased by 68% (equal to 85 billion dollars). This value makes Brazil the 3rd largest recipient of FDI in the world, behind only the USA (318 billion) and China (180 billion).
The European Union-Mercosul Treaty, signed in 2019 but not yet ratified by the individual countries of the two blocs, is advancing. During the Bolsonaro government, the European Union put a brake on the agreement due to worsening deforestation rates in the Amazon. At the end of April 2023, the European Parliament approved a law that prevents products from deforested areas from being sold in the 27 EU countries: these are meat, coffee, cocoa, soy, rubber timber, palm oil and their derivatives. There is certainly a protectionist intention behind this decision, given that the elimination of import tariffs would favor Brazilian products to the detriment of those produced in Europe. To try to overcome this “impasse”, Lula counts on the support of Spain, which assumes the presidency of the EU in the second half of 2023, but the road is still long.
Still on the subject of protectionism, the debate continues on the taxation of products purchased by Brazilian consumers on foreign electronic platforms, such as the Chinese Shein for example. Accused of tax avoidance, Shein is making agreements with Brazilian companies (such as Coteminas) to produce locally and thus avoid higher taxes.
With a decree-law, the government excluded from the privatization program drawn up by the Bolsonaro government seven state companies, including Correios (the Brazilian post office) and EBC (Empresa Brasileira de Comunicaçao). Lula said that during his term he does not intend to privatize any state-owned companies.
The government’s willingness to maintain (and expand, if possible) control over state-owned or state-owned companies is also evident with regard to the management of Petrobras, the most capitalized company in Brazil in which the government holds 50.2% of the shares. The shareholders’ meeting, convened on April 27, 2023, appointed eight new members of the Boards of Directors, three of whom (designated by the government) had previously been judged “unsuitable” by Petrobras itself due to a conflict of interest. One of the three, Pietro Mendes was also elected Chairman of the Board. Difficult times are ahead for the “governance” of Petrobras…
Here is the trend of the main economic indicators:
GDP (Value added at market prices)
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
| GDP – real growth (%) | 1,3% | 1,8% | 1,4% | -4,1% | 4,50% | 2,90% | 1,00% |
The forecast for the Brazilian GDP is still growing slightly, at around +1.0% per annum. The data for March 2023 was positive, but analysts expect a slowdown in growth starting from the second half of the year. The IMF has reduced its growth forecast from +1.2% to +0.9%, but the government continues to estimate GDP growth of 1.5% in 2023.
Inflation and real/dollar exchange
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
| IPCA (IBGE – %) | 2,95% | 3,69% | 4,20% | 4,38% | 10,0% | 5,62% | 6,05% |
Despite the decrease in the IPCA index to 4.16% in April, economists consulted by Banco Central expect inflation to exceed 6% at the end of the year.
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
| Exchange rate R$/US$ (end of the period) | 3,25 | 3,75 | 4,01 | 5,19 | 5,57 | 5,25 | 5,20 |
The dollar is quoted today (May 4, 2023) at R$ 4.99, down from a month ago (R$ 5.07). There are premises for a further strengthening of the real: the weakening of the dollar worldwide and the approval of the new fiscal rule (expected by the end of May) could lead the real to appreciate significantly.
The euro is trading at R$5.52 today, stable from a month ago.
Interest rate
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
| Nominal Interest rate (end of the períod) | 7,00% | 6,50% | 4,50% | 2,00% | 9,25% | 13,75% | 12,50% |
| Real interest (deflactor: IPCA) | 4,05% | 2,81% | 0,30% | -2,38% | -0,75% | 8,13% | 6,45% |
The Banco Central, in its last meeting in mid-March, maintained the discount rate (SELIC) at +13.75%.
The SELIC is expected to decline slightly by the end of 2023, but only by 1.25%. Fiscal uncertainty and inflation still above the target do not allow for more substantial cuts for the moment.
Therefore, the real interest rate (inflation discounted) is expected to remain at record levels again this year (just below 7%).
The Brazilian stock exchange (Bovespa)
A fluctuating month for Brazilian equity assets, which however closed April in substantial parity.
Ibovespa closed the session of 3 May 2023 at 101,797 points, +0.4% compared to the close at the beginning of March (101,362 points on 3 April 2023). The decrease in the period was +2.2% in dollars and +0.7% in euros.
Since the beginning of the year, Ibovespa has lost 7.3% in reais, 1.9% in dollars and 5.2% in euros.
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