Brazil

To many South American leaders, Chinese Premier Li Keqiang’s visit this week couldn’t come at a better time, and from a better country. China has been busy with Latin America, surpassing the United States as South America’s leading export destination outside of the region, according to the China-Latin America Economic Bulletin.

What is more, the ink is barely dry on big loan agreements to Venezuela and Ecuador, or a major China-Latin America cooperation plan signed in January that pledges to increase trade by $500bn and investment by $250bn and to cooperate on science and technology, trade, and environmental protection. Read more

Brazil’s economy – as beyondbrics readers know – is in serious trouble, and the unorthodox policies of the country’s embattled president, Dilma Rousseff, have been major contributors to the Brazilian real’s sharp depreciation. But as an analyst who has a long-held negative view on the Brazilian real, it is interesting to ask – at this moment – whether we might be missing something now that investor sentiment has caught up with our bearish stance on the currency.

In short, given the real’s steep drop since 2011, has Brazil’s currency hit a bottom? Read more

I have just returned from abroad. It felt like déjà vu from a distant past. Explaining Brazil has become complex again. “I read about corruption accusations, popular protests, deficits and crises; what is happening in Brazil?” I was asked by an important investor. The answer inevitably tends to be long and full of Buts and Ifs.

Nevertheless, I will make an effort to summarize it here in a straightforward way. Brazil did not invest enough during the favorable commodity cycle. Policymakers did not recognize the end of the cycle in time. When they did, they tried to go back to a past that no longer existed. Now, Brazil must adjust everything at once to avoid a worse crisis. But markets are dynamic: with the recent depreciation of the real, there are already investors looking for opportunities. That is the reason Brazilian assets rebounded lately. Read more

Blink and you missed it. The day after the US Federal Reserve appeared on Wednesday to put back the date of its long-awaiting interest rate rise, analysts at Bank of America Merrill Lynch wrote to clients: “Emerging market currencies temporarily halted their losing streak with a dovish Federal Open Market Committee sending the USD lower.”

“Temporarily” is right. The Brazilian real closed at about R$3.21 to the dollar on Wednesday from its open of R$3.24, a rare day’s gain in a two-month slide. But on Thursday it was back on course, falling quickly beyond R$3.30 before recovering a bit, an intraday move of nearly 3 per cent. In less dramatic manner, the Turkish lira, Russian rouble and South African rand all resumed their downward slides, too. Read more

It was a cathartic weekend for Brazilians, as more than a million people took to the streets to show their discontent with the government in scenes not seen since the mass demonstrations that preceded the impeachment of President Fernando Collor de Mello more than a decade ago.

Sadly, any idea that such a “cleansing of the soul” (as they sometimes say in Brazil) would be followed by a fresh optimistic start on Monday quickly evaporated as the central bank’s weekly round of consensus forecasts showed no end to the deepening gloom. Read more

The Brazilian real continued its collapse on Monday, passing the barrier of R$3.10 to the US dollar just three trading days after going through the R$3.00 barrier. The currency is at its weakest for more than a decade and has lost half of its value since its peak of R$1.54 to the dollar in July 2011.

There is little reason to expect a recovery any time soon. Read more

Brazil, it seems, simply can’t put its house in order. The real hit R$3 to the US dollar during trading on Wednesday for the first time in more than a decade, after Renan Calheiros, president of the Senate, rejected a presidential decree that would have raised payroll taxes. The measure is seen as essential to meeting ambitious fiscal targets set by Joaquim Levy, the market-friendly finance minister installed in January to rescue the economy, and was the subject of a public rift between Levy and President Dilma Rousseff last weekend.

Failure to meet those targets – or even the fear of failure – puts Brazil’s hard-won investment grade credit rating in jeopardy. Markets were especially jittery on Wednesday, economic daily Valor Econômico reported, as a team from Standard & Poor’s, one of the three global ratings agencies, arrived in Brazil to evaluate the country’s credit risk. Read more

As Brazil’s monetary policy committee sits down in Brasília the consensus view is that it will attempt to regain some credibility in the fight against inflation and raise its policy interest rate by 50 basis points for a third consecutive time. That would bring its target overnight rate, the Selic, to 12.75 per cent a year. Even after discounting inflation of about 7.5 per cent, that is still a very hefty 5.25 per cent a year. So whatever the Copom announces on Wednesday evening after two days of deliberation – it will be either 50bp or 25bp – it will raise protests from labour unions and others worried about the impact of high interest rates on consumption and jobs.

But policy makers may well feel that, right now, inflation matters more. Read more

Another week goes by and the outlook for Brazil’s economy gets gloomier still. The consensus on GDP is now for a 0.58 per cent contraction this year, according to the central bank’s latest weekly survey of market economists, while industrial production is expected to contract by 0.72 per cent. Inflation is expected to rise to 7.47 per cent; the central bank’s policy interest rate is seen ending the year at 13 per cent.

The survey was published on Monday after a weekend that saw yet another apparent rift open up at the top of government, along with some surprising behaviour by President Dilma Rousseff. Read more

So much is going wrong in Brazil that it is hard to keep up. For years, critics have accused the government of incompetence. Now its actions are looking catastrophic – so much so that there are good reasons to think President Dilma Rousseff, who began a second four-year term only on January 1, may not last much longer.

Here is our list of 10 things that threaten to bring her down. Read more

Back in November, we wrote about an analysis of tweets in Brazil that illustrated the extreme polarisation of the country’s voters on the eve of the presidential election on October 26. A striking image (seen in miniature on the left) generated by Marco Aurélio Ruediger and colleagues at the Fundação Getúlio Vargas, an educational institution in Rio de Janeiro, showed voters on each side of the two-way race talking exclusively among themselves and almost never to each other.

Three more snapshots produced by Ruediger and his team since the election suggest a big change has happened in the debate taking place on social media – but that supporters and opponents of the government remain as polarised as ever. Read more

By Chris Tucker of MBX Systems

“What do you know about shipping product into Brazil?” When I think of the conversations I have had with our appliance customers over the last several years, this question makes a regular appearance. Brazil’s rapidly growing IT market (estimated at $191bn) and developing infrastructure have been appealing to our small and large customers alike, in markets from broadcast media to security. It is easily apparent why this market is so interesting, but it can actually be more taxing than one may think due to multiple factors.

Read on if you are considering shipping product into Brazil and want to know the challenges of selling and deploying your technology there. Read more

If Petrobras’s chief executive Maria das Graças Foster had any doubts about her popularity among investors she only had to look at Brazil’s stock market on Tuesday.

Petrobras’s shares jumped over 13 per cent in afternoon trading, pushing Brazil’s BM&FBovespa index into positive territory, on rumours that President Dilma Rousseff had finally decided to give Graças Foster the boot. Read more

By Rodrigo Zeidan, Fundação Dom Cabral

The debate over the minimum wage in the US is an interesting one. Wages have been falling in real terms for the last 30 years but there is strong resistance to any kind of increase in the federal minimum wage. The social contract in the US calls for a flexible labour market, and market efficiency trumps equality considerations. Not even Nobel Laureates can influence the debate. But there are lessons to be learned from the strong real growth minimum wage policies in two of the Bric countries, Brazil and China. Read more

PIB = GDP, IPCA = CPI. Black lines = 2015, red lines = 2016. Source: central bank

The task facing Brazil’s new economics team came further into focus on Monday morning with inflation expectations rising and the consensus on economic growth falling, both for the fourth consecutive week. The central bank’s latest weekly survey of market economists has GDP rising just 0.13 per cent this year, down from the 0.55 per cent expected four weeks ago, while consumer price inflation is seen ending the year at 6.99 per cent, up from 6.53 per cent four weeks ago and some way beyond the upper limit in the government’s target range of 4.5 per cent plus or minus two percentage points. Read more

January is normally a quiet month for dealmaking in Brazil as executives collapse on a beach somewhere for their long summer holiday between Christmas and Carnival. However, that could all change this year as bankers push ahead with the next stage of the telecoms market’s consolidation.

Late on Thursday, the Brazilian mobile phone operator Oi finally got approval from its merger partner Portugal Telecom to sell the Portuguese company’s assets to France’s Altice. (Altice agreed to the €7.4bn acquisition in November but minority shareholders had threatened to sabotage the deal.) Read more

The gloom continues to darken over the outlook for Brazil’s economy this year but, for the time being, investors are betting that the country’s very high interest rates are worth the risk.

The central bank’s latest weekly survey of market economists shows the consensus on economic growth this year falling yet again, to just 0.38 per cent. Inflation expectations, meanwhile, have crept up again, to 6.67 per cent, beyond the upper limit of the government’s target range. Read more

By Otaviano Canuto, Cornelius Fleischhaker and Philip Schellekens of the World Bank

Brazil’s is an unusually closed economy as measured by trade penetration, with exports plus imports equal to just 27.6 per cent of GDP in 2013. Brazil’s large size is often used to explain its relative lack of openness. But this argument does not stand up to scrutiny: among the six countries with larger economies than Brazil’s, the average trade-to-GDP ratio is 55 per cent. Given the size of its economy, we would expect Brazil’s trade to be equal to 85 per cent of GDP, three times its actual size. Read more

After only a few weeks of market-friendly measures, it looks like the late-flowering romance between investors and Dilma Rousseff, Brazil’s president, could already be coming to an end.

Rousseff had been widely expected to attend the World Economic Forum in Davos next week. But on Tuesday the presidential palace said she would be going to the inauguration ceremony of Bolivia’s leftist leader Evo Morales, instead.

“What an embarrassment!” exclaimed one Brazilian on Twitter. “This is the reason why people abroad think Brazil is a joke,” wrote another. Read more

By Ilan Goldfajn of Itaú-Unibanco

China’s growth model has long been driven by exports and investment, favouring commodity exporters like Brazil. But as its future growth will be fueled by increases in household spending, this shift will have a negative impact on the prices of international commodities, including those exported by Brazil.

However, the outlook for a weaker Brazilian real and a stronger renminbi implies a reduction of wage differentials, which could be favourable for Brazilian manufacturers. This creates growth opportunities for other segments of the Brazilian economy, especially if Brazil resumes its productivity gains, narrowing the current cost differential between the two countries. Read more