Brazil

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

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