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
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
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
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.
By Marcos Troyjo of Columbia University
As Dilma Rousseff struggles to assemble a new economic team after the bitter political strife that led to her re-election by a thin margin, a tension has built up between continuity and change.
The divide between the “more of the same”, “nothing is wrong” discourse that Dilma’s marketing gurus had her voice during the campaign and the no-nonsense imperatives of economic reality that compel her to shift course is now a major cause of dispute in her own political support base. Read more
Ministers resign all the time and there’s nothing unusual about one of them handing in his or her notice as the head of government is preparing to unveil a new cabinet for a second term in office. But Marta Suplicy’s resignation as Brazil’s minister of culture on Tuesday had a peculiar sting in the tail.
After the usual stuff about how happy she was to have achieved all she had done in the job, Suplicy delivered what journalists sometimes refer to as a “nut paragraph”: Read more
When Dilma Rousseff was re-elected as president of Brazil on October 26, she promised to be a much better president than she had been during her first term (which ends on December 31). Whatever she meant by that, analysts do not seem to believe it will result in a pick up in economic growth. The central bank’s latest weekly survey of market economists, on the contrary, shows the consensus on GDP growth this year falling to just 0.2 per cent (the black line in the chart) and that for 2015 falling to a not much better 0.8 per cent (the red line). Read more
Two central banks surprised the world last week with unexpected hikes in interest rates in the face of panicky financial markets. Raising rates a startling 150 basis points, the Central Bank of Russia was reacting sharply to yet another week of runs on the rouble. (It fell further this week nonetheless.)
The other, the Central Bank of Brazil, increased the cost of borrowing by a more modest 25 basis points. It seemed to be attempting to re-establish its independence credentials after the previous weekend’s presidential elections and subsequent worries that economic policy would tend towards the populist and the inflationary.
Yet just as with the advanced economies’ central banks – the Bank of Japan ramping up quantitative easing just as the Fed withdraws – monetary policy has diverged rather than unified in the big emerging economies. Read more
Brazil’s market has been in a state of mild depression since President Dilma Rousseff was re-elected just over a week ago – only ‘mild’ because many believed Aécio Neves of the business-friendly PSDB party never stood a chance.
However, there is still one topic of conversation guaranteed to raise a hopeful smile or a few extra points on the country’s Bovespa stock index, and that’s Rousseff’s next choice of finance minister. Read more
For a few days, it appeared that former president Luiz Inácio Lula da Silva had disappeared from the campaign for re-election of his comrade and protégé, incumbent president Dilma Rousseff.
But with only five days left before the second-round run-off on October 26, he reappeared in fine form, ripping into rival candidate Aécio Neves of the centrist PSDB in a speech in Pernambuco, the only state in Brazil’s poor and politically important northeast where Dilma lost in the first round of the elections on Oct 6. Read more
Like the country’s soap operas, Brazil’s presidential elections have been full of drama, improbable story lines and last-minute cliff hangers. Monday night was no different.
Just as Brazilians were beginning to wonder whether Aécio Neves of the centrist PSDB party could actually win this Sunday’s vote, a Datafolha poll showed President Dilma Rousseff ahead for the first time since the first round of elections on October 5. The results are still too close to call though, falling with the polling firm’s margin of error. Read more
As if to add substance to complaints from emerging market policymakers about being ignored, a matter mainly affecting middle-income countries became the subject of close global attention only when it emerged as a bone of contention between the US and Europe.
The snappily-titled “investor-state dispute settlement” (ISDS) process, where companies have the right to sue governments for disadvantaging their businesses, has been the subject of deep controversy for years. But since the most vocal discontents were nations like Argentina and Venezuela that complain about more or less everything, it took well-organised campaigning and official German opposition to an ISDS chapter in the US-EU Transatlantic Trade and Investment Partnership (TTIP) to make it a central concern. Read more
The coalition of small parties behind Marina Silva are edging closer to supporting Aécio Neves of the pro-business PSDB party in the second round-run-off of Brazil’s presidential election.
The Brazilian Socialist Party, the leading party behind the candidacy of Ms Silva, who dropped out after placing third in the first round of voting on Sunday, on Wednesday became the second grouping in her coalition to say it was opting for Mr Neves.
The party said it would support Mr Neves, who placed second in the first round, on condition that “an agreement would be discussed and signed concerning policies, considering the urgency to create the necessary environment for a new cycle of development”. Read more
Hat tips to a couple of beyondbrics readers for this one: the coining of a new economic predicament in the form of the stagno-squeeze, in which zero growth and rising prices leave governments and citizens squeezing every last drop of benefit from what they already have, given the difficulty of obtaining or producing anything more.
And how apt that Brazil’s government should immediately demonstrate the stagno-squeeze in action, by raiding its sovereign wealth fund to plug a widening hole in its budget. Read more