By Márcio G. P. Garcia, Lucas Maynard and Rafael Fonseca
The deterioration of the Brazilian economic situation in the last few months is quite impressive. Looking through a few of the recent economic indicators, the only ones that are pointing up are the ones that you would like to see going down: inflation, unemployment, delinquency rates, interest rate and public debt.
Despite an economic policy U-turn in the second Dilma Roussef´s government, represented by the substitution of the heterodox Finance Minister Guido Mantega by the University of Chicago-trained Joaquim Levy and by the Brazilian Central Bank’s much tougher monetary policy stance, the government has not been able to contain a deterioration in the expectations. The confidence indicators are at their lowest level in history, indicating that not only is the situation dire, but also there is no likelihood of it getting any better in the short term. Read more
Even Western executives who are good at geography may have a hard time picking out Surat, Foshan and Porto Alegre on a map. Yet over the next decade, each of these cities will contribute more to global economic growth than Madrid, Milan or Zurich.
While China’s move to cut interest rates this month has sparked some concern about emerging-market growth, , we see no let-up in one of the most disruptive trends of our time: the shift of the world’s center of economic gravity from advanced economies to the developing world, and in particular, to rapidly growing cities in Asia, Latin American and Africa. Even at 6 to 7 per cent growth, China is adding the equivalent of a Canada to the global economy every two years.
We are currently living through the biggest mass migration from countryside to cities in human history. The global population of cities is growing by 65m people annually – that’s the equivalent of 7 Chicagos a year, every year. Between now and 2025, we calculate that 440 cities in developing countries will generate nearly half of global GDP growth. 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
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
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
The Bric countries – minus India – embellished their growing reputation as laggards in the emerging market (EM) universe in January as manufacturing activity in Russia and China declined and Brazil turned in another subdued performance, data published on Tuesday shows.
The result is that, as a bloc, the Bric countries (Brazil, Russia, India and China) are diverging from the rest of the EM universe in manufacturing output and the trajectory of GDP growth. Other EM countries, meanwhile, are reaping the benefit of positive global demand and assuming a role as the key engines of developing world growth. 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
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
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
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
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