Brazil

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

The year is barely under way and already Brazilian analysts are hurriedly revising down their projections for economic growth in 2015. In the central bank’s second weekly survey of market economists of the new year, published on Monday, gross domestic product is seen expanding by just 0.4 per cent, down from 0.5 per cent expected last week and about 0.7 per cent a month ago.

It is an inauspicious way to begin a year that not only will be hugely significant for Brazil but in which Brazil – or so Manoj Pradhan and Patryk Drozdik of Morgan Stanley argue in a note on Monday – will be hugely significant for the rest of EM. Read more

Consumer price inflation in Brazil was 6.4 per cent last year, the country’s statistics office said on Friday. This was in line with expectations but it will nevertheless have provoked sighs of relief in Brasília. While inflation was well above the government’s target of 4.5 per cent, it did at least remain within its tolerance band of 2 percentage points, so the central bank will not have to write to the president to explain its failure to do its job.

It is yet another case, in Brazil, of things being good only because they are not outright bad. Read more

As Brazil’s outgoing finance minister, Guido Mantega, bids “tchau” to his former job , he has at least one thing to feel good about.

While the economy is a shadow of what it was when he took office eight years ago, he does seem to have succeeded in at least one major policy – his campaign to weaken Brazil’s currency, the real.

The man who is credited with making the term “currency war” his own seems to have won his battle to weaken the Brazil’s currency in the face of a tide of foreign speculative hot money. Read more

Dilma Rousseff may now be in her second term as Brazil’s president but that has not stopped Brazilians from continuing to obsess over her wildly popular predecessor, Luiz Inácio Lula da Silva.

Over the weekend, the Brazilian columnist Leandro Mazzini at the Folha de São Paulo newspaper group sent shockwaves across the country by reporting that Lula has been battling pancreatic cancer since the beginning of 2014. Read more

By Tony Volpon of Nomura Securities

The Brazilian economy is in a perilous state as it enters 2015. Economic growth is flirting with an outright recession this year. Inflation is oscillating around the upper bound of the inflation target. Fiscal accounts are showing a primary deficit, and measures of indebtedness are rising. The current account deficit is also rising and the country may see a trade deficit in 2014.

External conditions are unlikely to improve in 2015. Brazil was one of the big winners from the Chinese-driven commodity boom, so it is not surprising that many of the problems we see today began with the fall in the country’s terms of trade that began in 2011. Whatever the inadequacies of the policy response, the government does have a point when it argues that external conditions have been a big part of the slower growth seen since 2011. Read more

With only a couple of weeks left in the year, Brazil watches are still revising downward their view on GDP growth for 2014. The central bank’s latest weekly survey of about 100 market economists has GDP growth coming in at a feeble 0.16 per cent this year, down from 0.18 per cent a week ago and 0.21 per cent a month ago. The consensus for 2015 is also sliding: just 0.69 per cent growth is expected in this week’s report, down from 0.73 per cent last week and 0.8 per cent a month ago.

Those looking for a silver lining to this darkening cloud may argue that it reflects a conviction among analysts that Brazil’s new economics team under Joaquim Levy at the finance ministry (pictured above) is serious about reining in the public deficit and that this, while positive in the long term, will dampen growth in the interim. Read more

Brazilian real notesBrazilian officials are accustomed to shrugging off the country’s debt levels by comparing them with those of much more heavily indebted Europe.

Although this misses the point – Brazil’s public debt is more burdensome than in most other countries because it has some of the highest interest rates in the world – the argument is doubly wrong if a new study by Moody’s is to be believed. Read more

There are plenty of misconceptions about Brazil. Many Brazilians have no interest in football, can’t stand samba and would rather spend the weekend in a shopping centre than on the beach. They certainly don’t speak Spanish. When it comes to the economy, though, perhaps one of the biggest myths about the country is that Brazil has an inflation target of 4.5 per cent.

Officially, the Brazilian central bank’s annual inflation target has been 4.5 per cent ever since 2005. However, in reality, inflation data show Brazil has actually been working with a target closer to 6 per cent for the past few years. Read more

A reminder for Brazil’s new finance minister, if he needed one, of the task ahead: the country’s manufacturing purchasing managers’ index, prepared by Markit Economics for HSBC, fell from 49.1 to 48.7 in November, its lowest level in 16 months.

November’s PMI followed the central bank’s weekly survey of market economists, also out on Monday, which showed the consensus on GDP growth falling yet again, to 0.19 per cent this year and to 0.77 per cent in 2015. Read more

By Monica Baumgarten de Bolle of the Woodrow Wilson Center for International Scholars

President Dilma Rousseff’s soon to be announced new finance minister may mark an important shift in Brazil’s faltering macroeconomic framework: From the ill-fated experimentalism that culminated in the so-called “New Economic Matrix”, brain child of Minister Guido Mantega, to newfound orthodoxy. From a failed model based more on ideology than economics to more rational policymaking, this is what one should expect from Joaquim Levy’s appointment, widely expected to be confirmed on Thursday. How long it all lasts is another matter altogether. Read more

It was close, but they didn’t make it. The political fixers of Brazil’s government had hoped to push through a bill on Wednesday that would have removed its obligation to meet a target of a primary fiscal surplus (before debt payments) of 1.9 per cent of GDP in this year’s budget.

The hope was that the bill would have been passed in time for the expected announcement on Thursday of a new economics team, widely tipped to be led by Joaquim Levy as finance minister. Success would, in a way, have swept out the old team’s jiggery pokery over public accounts before ushering in the new brooms of team Levy. Now it will just have to be done after the event. Read more

An index of confidence among Brazilian manufacturers suggests things aren’t as grim as all that, after an index of consumer confidence published on Tuesday hit a post-crisis low.

But the uptick in the manufacturing confidence index produced by the Fundação Getulio Vargas – the same academic institution that prepared the consumer index – does not bear close inspection.

Source: FGV/IBRE. Click to enlarge

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Another reminder of the challenges facing Dilma Rousseff as she struggles to put together an economic team for her second term in office: consumer confidence is at its lowest ebb since the depths of the global financial crisis in December 2008.

Source: FGV/IBRE

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Is Brazil’s Workers’ Party, victorious in last month’s elections, ready to back any decision by President Dilma Rousseff to hire Joaquim Levy as finance minister?

Speculation over his likely appointment leaked last Friday into local media, sending financial markets higher.

With a doctorate in economics from the University of Chicago and a previous successful stint as treasury secretary under former President Luiz Inácio Lula da Silva in 2003, Levy seems to be exactly the type of professional that financial markets were hoping might be appointed. Read more