The oldest economics think-tank in Brazil, Ibre, tied to Getulio Vargas Foundation (FGV) in Rio de Janeiro, expects the local economy to gain momentum in the second half and finish 2019 with 1.2% growth, the fastest pace in six years. The median of market estimates, according to the Central Bank’s Focus survey, is 0.82%. Although more optimistic than most analysts, Sílvia Matos, coordinator of Ibre’s Macro newsletter, does not mince words: “We are talking about somewhat better growth, but compared to a very bad period last year, after the truckers’ strike, the crisis in Argentina and a quite turbulent electoral process. It’s a disaster, honestly.” She added that that, with falling capital expenditures, growth composition this year will be “less favorable.” Ms. Matos was elected “Chief Economist of 2019” by Brazil’s Economists Association. It is the first time that the award is given to someone who does not work at a financial institution or consulting firm.

Source: Valor Econômico


The volume of new shares issued in the first half was the largest in the historical series prepared by capital markets association Anbima since 2002. Between January and June, R$29.3 billion in stocks were issued, up 324.6% from R$6.9 billion in the first semester of 2018. According to Anbima, the first half featured ten follow on offerings (which raised R$24.8 billion) and two IPOs (R$4.5 billion). All-time low interest rates pushed domestic institutional investors to the equity market, in search of diversification and greater returns. The participation of investment funds in stock underwriting nearly doubled to 50% in the first semester from 26.6% one year earlier.

Source: Valor Econômico


Brazil’s annual rate of inflation likely eased in May, according to a Reuters poll of economists, falling for the first time this year in a sign that it may have peaked, while remaining well above the central bank’s target.

The median estimate from 15 economists was for consumer price inflation to fall to 4.72% in the 12 months through May from 4.90% in April, driven by weaker food and fuel prices.

The monthly rise is seen slowing to 0.20% from 0.57% in April, according to the poll, a rate that would be the lowest this year.

“We anticipate food deflation to have gained momentum in the second half of May, which underpins our expectation for (monthly) inflation to have moderated to 0.21% in May,” said Barclays economists in a note to clients. “If our forecast is correct, annual inflation should decelerate to 4.7%.”

Central bank policymakers will be hoping the forecasts are right. April’s annual inflation of 4.9% was the highest in more than two years, above the central bank’s year-end target of 4.25% and brought a break above the 5.0% threshold closer into view.

Policymakers earlier this year said inflation would peak around April or May before returning to target. But minutes of their May 7-8 meeting showed they had softened that view slightly, and now see inflation peaking “in the short term.”

In broad terms, Brazil’s economy is generating few inflationary pressures. Activity contracted in the first quarter for the first time since 2016 and the indications are the current quarter is not much better. Recession risks are rising.

In addition, unemployment remains high, at 12.5%, with more than 13 million Brazilians out of work and a huge degree of spare productive capacity across the economy.

On the other hand, Brazil’s currency weakened to 4.12 per dollar BRBY in May, the worst in eight months, pushing up import prices and input costs. That has put the squeeze on companies weighing whether to pass higher prices along to consumers.

IHS Markit said this week that exchange rate pressures kept input price inflation at “elevated” levels in May, but companies raised their prices only “marginally” in comparison.

“Across the private sector, charge (price) inflation eased to a three-month low,” it said.


Source: Reuters

It is a fact that Brazil has been through a liberating change since President Jair Bolsonaro won the election. He gave the world a short demonstration of his intentions to take the country out of the socialist hole we found ourselves in when, a few weeks after winning, he declared that the Brazilian government would no longer subsidize the Cuban regime via the exploitative More Doctors program.

Bolsonaro’s administration recently completed its first 100 days, and numerous liberalizing measures came about during this period. Gun rights for civilians are expanding; homeschooling is poised to be legally recognized; some job-killing regulations were terminated; talks about the privatization of giant state-run companies such as Petrobras and Correios have gained ground; pension reform got its first approval in Congress, and so on. It looks like we are on our way toward replicating the Chilean miracle.

Yet, if I were to pick up only one action taken by his economic team to best demonstrate to my foreign friends the pro-liberty momentum Brazil is experiencing right now, it would be the so-called declaration of economic freedom that was just signed. Conceived by the founder of Instituto Mises Brasil, Hélio Beltrão, in collaboration with members of the Ministry of Economy, the Executive Provisional Act is a set of rules designed to boost free enterprise and impose limits to government intervention over small businesses. It has a 120-day validation period before Congress votes on its permanent implementation.

Here are the 17 freedom principles that drive the document:

  1. Freedom against bureaucracy—to eliminate unnecessary certifications required by state agents;
  2. Freedom to work and produce—to prevent actions from unions or agencies that restrict the operation of small businesses or intervene in their policies;
  3. Freedom to set prices—to prevent bills from being manipulated so that monopolies are not created;
  4. Freedom against arbitrariness—to avoid state agents benefiting one entrepreneur at the expense of others;
  5. Freedom to be presumed in good faith—to guarantee that contracts and private agreements are respected when the interpretation of a law or right is not clear;
  6. Freedom to modernize—outdated regulations cannot rule modern businesses;
  7. Freedom to innovate—no license may be required while the company is still testing, developing, or implementing a product or service that is not of high risk;
  8. Freedom to agree—if two parties agree in contract, no judiciary action can be taken to alter it;
  9. Freedom not to go unanswered—every license or application will have to have a maximum time, which, when passed, will mean approval in silence;
  10. Freedom to go digital—all papers will be digitalized so companies will not have costs in stocking documents;
  11. Freedom to grow—to guarantee small companies access to the capital market;
  12. Freedom to endeavor—to protect business owners and entrepreneurs from being pre-judged as villains before a clear demonstration of their guilt;
  13. Freedom to write contracts with international standards—to limit the cases in which judiciary decisions can alter contracts;
  14. Freedom against abuse—to prevent state agents from issuing abusive remarks and regulations;
  15. Freedom against economic regulation—no economic regulation may be issued without a consistent analysis of its impact;
  16. Freedom of corporate regulation—commercial associations will be legalized;
  17. Freedom of contractual risks—the right of two parts to agree to the allocation of risks in contracts will be licit and respected.

Besides the economic outcomes expected from the implementation of the decree, it will also have a positive impact on our mindset. For many decades, Brazilians have systematically been taught countless economic fallacies which say capitalism generates poverty and that the state is the only entity able to stimulate the economy.

Regardless of the numerous examples of successful free-market societies over the world, there are still people here (many of them Economics bachelors, I regret to tell) who cannot see the correlation between economic freedom and well being. Overcoming our long-standing anti-capitalistic mentality will certainly be the greatest aspect of implementing the 17 rules of the economic freedom declaration.

Undoubtedly, this new economic freedom provisional act is already the result of a whole process of pro-liberty education and awareness that started a couple of years ago when Brazil was still governed by diehard Marxists. It is rewarding to see the power of ideas reverberating in measures that will lift millions of Brazilians out of poverty and unemployment.


Source: Foundation For Economic Education

Brazil’s pension overhaul proposal returns to the congressional spotlight this week, with a committee of lower house lawmakers opening its analysis of the government’s bill just as the outlook for the economy is deteriorating rapidly.

The special committee convenes after weeks of political delay and a sprinkling of public holidays. From an economic and market perspective, the timing could not be more critical.

The central bank’s weekly survey of nearly 100 financial institutions on Monday showed the median gross domestic product forecast for 2019 fell sharply to 1.49 percent from 1.71 percent the week before.

That was the bleakest outlook so far this year for the Brazilian economy. The forecast in January was for 2.55 percent growth. A string of weak data suggested the economy may have shrunk in the first quarter and is still struggling.

On Monday, the latest purchasing managers index survey of Brazil’s services sector showed activity contracted in April for the first time since September.

The weakening outlook for 2019 suggests this year is something of a write-off economically, despite hopes that investors would be encouraged if social security reform makes progress in Congress.

But hopes on that front have faded also. The government recently increased the targeted savings from the overhaul to 1.237 trillion reais ($312 billion) over the next decade, but market expectations of what will eventually be delivered are around half that.

The Special Committee of some 40 lawmakers is expected to begin debate and analysis of the pension reform bill on Tuesday and hold 11 public hearings this month before submitting a report, possibly in early June.

Further discussions on the report’s recommendations would then follow, and if all goes smoothly, the committee could vote by the end of June, setting the stage for a vote by the lower house plenary in early July.

Most analysts are skeptical of that timeline, citing President Jair Bolsonaro’s struggles to build a coalition behind the bill.

“We see risks of delays pushing the (special committee) vote into July, depending on the level of political cooperation between the government and centrist parties,” Barclays analysts wrote in a note last week.

Investors have grown more pessimistic in recent weeks. The average estimate of expected savings over the next decade in a Morgan Stanley client poll is now 620 billion reais, compared with 690 billion reais only two months ago. Only 5 percent of respondents expect approval by the end of June.

The deteriorating outlook has also weighed on Brazilian markets. The real has hovered around 4.00 per dollar since late March, weaker than many analysts predicted earlier in the year.


Source: Reuters

Brazil’s government is sticking to its goal of having its pension reform bill, with promised public savings of more than 1 trillion reais ($262.5 billion) over the next decade, ready for a vote in the lower house of Congress by the end of May.

In an interview with Reuters in Brasilia on Tuesday, Rogerio Marinho, secretary of social security and labor at the Economy Ministry, pushed back against market concerns that the timeline and savings target are too optimistic.

Investors say tackling Brazil’s crippling social security deficit is critical to putting the country on a firmer economic and financial footing. The Economy Ministry has warned that failure to pass any reform will plunge the economy into recession as early as next year.

“The proposal we are putting forward to Congress is one that we think is adequate for the country,” Marinho said when asked if savings of 1 trillion reais was an achievable target.

Asked if anything less was therefore “inadequate,” Marinho said the Brazilian parliament would discuss the bill and “make modifications, even improvements.”

The government’s reform package aims to raise the minimum retirement age for men and women, increase the length of time workers must pay into the system, and reduce benefits for rural workers and military personnel. The bill projects total savings over the next decade of just under 1.2 trillion reais ($315 billion).

Economy Minister Paulo Guedes said last weekend that 1 trillion reais was an “important line” in the sand. But recent surveys from Morgan Stanley and Brazilian brokerage XP Investimentos show investors expect that will be watered down to around 700 billion reais.

Marinho recognized that the complexity of the proposals and challenges in overhauling a decades-old system. The draft bill was only presented on Feb. 20, but he is confident it will be ready for a vote by the full lower house in May.

“In terms of timing, we are able to meet our deadlines. Everything will depend on the dynamics of the debating process in parliament,” he said. “We know pension reform is not an easy process. But we’re very happy to have that debate.”

Once passed by the lower house, the bill will go to the Senate for final approval.

While Marinho and other officials say support for pension reform among lawmakers has never been higher, a lack of political cohesion in Congress could delay approval. Some analysts say it could drag out until the final months of 2019.

In that regard, Marinho applauded President Jair Bolsonaro’s recent tweets, statements and video selling pension reform to the public, following criticism from some allies that he had been too silent on the issue.

Asked if pension reform depended on Bolsonaro’s support, Marinho said: “I think so, but it also depends on a narrative based on facts.”

“He has credibility. Without doubt he is the leader of this process, and anything he does will be beneficial, including galvanizing and mobilizing people to get onside with this change that’s so necessary for the country,” he said.

Analysts at BNP Paribas on Monday noted that of Bolsonaro’s more than 500 tweets since becoming president, only five were about pension reform. That is fewer than the eight jokes he has tweeted out to his 3.68 million followers.


Source: Reuters

Brazil posted a trade surplus of $3.673 billion in February, government data showed on Friday, surpassing market estimates of $3.0 billion, with imports falling more than exports due to sluggish domestic demand.

Imports totaled $12.620 billion, a 21.2 percent drop from the same month a year ago, while exports fell by 15.8 percent to $16.293 billion, the trade ministry reported.

It was the highest surplus for the month of February since the series began in 1989.

Brazil’s trade surplus last year narrowed 13 percent to $58.3 billion from $67 billion the year before. It is forecast to drop further to $51 billion this year, according to economists polled by the Central Bank.

Economic growth in Brazil almost ground to a standstill at the end of last year. Gross domestic product expanded by just 0.1 percent in the fourth quarter, while over the course of 2018 growth was unchanged form the previous year at 1.1 percent.

The GDP data suggest activity this year will be lackluster again. Economists at Barclays cut their 2019 growth forecast to 2.2 percent from 2.5 percent, and Goldman Sachs economists cut theirs to 2.0 percent from 2.2 percent.

As part of his orthodox economic reform agenda of cutting taxes, slashing public spending and overhauling the pension system, President Jair Bolsonaro has also said he wants free “bilateral trade with the entire world without an ideological bias”.


Source: Reuters

The Chinese government is looking to boost its presence in the Brazilian food processing sector and reach agreements on joint food safety controls that would allow for long-term supply deals between the countries, a Chinese official said on Wednesday.

Yang Wanming, who took over as China’s ambassador to Brazil roughly two months ago, said in a presentation to businessmen and Sao Paulo state government officials that the Asian nation is also looking into opportunities in the country’s infrastructure projects and oil refining sector.

“The two countries should boost trade flows, work to liberalize and facilitate trade, expand two-way access to markets,” Yang said in the presentation, through a translator.

“The agricultural sector is an important part of our trade cooperation. China would like to enlarge that cooperation toward processing of agricultural products and intensify cooperation in food safety controls with the aim to build a long-term partnership, where both countries would win,” he said.

Some Brazilian food processors were bruised by a large food safety probe started in 2017 that investigated the relationship between meatpackers, agriculture ministry officials and laboratories with a mandate to certify the safety of meat products.

The probe, which is still ongoing, alleged that some firms bribed inspectors to keep processing plants running, issue international health certificates, and allow the sale of products in violation of food safety standards.

China has been Brazil’s largest trade partner since 2009, a relationship that reached almost $100 billion last year.

There were signs of possible obstacles to expanding relations during last year’s presidential campaign in Brazil, when right-wing candidate Jair Bolsonaro, who won the election, criticized recent acquisitions of Brazilian assets by Chinese companies.

Yang said he has spoken with several ministers in the new administration since he arrived in Brasilia earlier this year, and was well-received.

“All of them expressed interest in boosting our relation. The President himself expressed his will to deepen our relationship, particularly in trade,” the ambassador said.

He did not provide details of China’s plans in food processing or oil refining.

Chinese company CNODC, a subsidiary of China’s National Petroleum Corporation (CNPC), signed an agreement with Brazil’s Petrobras last year to partner on building the Comperj refining complex in Rio de Janeiro.


Source: Reuters

The Brazilian government posted a fiscal surplus of 46.9 billion reais ($12.5 billion) in January, the central bank said on Thursday, above forecasts but unchanged from a year earlier.

In Brazil, January is traditionally marked by higher tax revenues and lighter spending, so these figures do not change the fragile outlook for public finances, analysts said.

The primary surplus, comprising the central government, regional governments and state-owned enterprises before interest payments, exceeded the 34.3 billion reais median forecast in a Reuters poll of economists.

For the 12 months to January, the primary deficit was equal to 1.57 percent of gross domestic product (GDP), the central bank said, a figure that analysts call worryingly high.

“Overall, the fiscal picture remains very weak, despite the effort over the last two years to contain discretionary spending and the significant retrenchment of public investment,” said Alberto Ramos, head of Latin America research at Goldman Sachs.

“A deep, permanent, large structural fiscal adjustment remains front-and-center on the policy agenda to restore both domestic and external balance,” he wrote in a note to clients.

Brazil’s gross public sector debt in January was 5.3 trillion reais, or 76.7 percent of GDP, unchanged from the month before, the central bank said.

Ramos warned that public debt is on track to hit a “disquieting” 80 percent of GDP before stabilizing, leaving the economy with little wiggle room to cope with adverse shocks.

Earlier on Thursday, data showed that Brazil’s economy almost ground to a standstill at the end of last year, with economists warning that the weak momentum is likely to carry on into this year.

President Jair Bolsonaro’s cornerstone economic proposal is a pension reform bill he delivered to Congress this month, which would raise the minimum retirement age in an effort to save more than 1 trillion reais over the next decade.

Thursday’s figures showed a surplus of 35.6 billion reais from the central government, 10.8 billion reais from regional governments and 507 million reais from state-run firms.


Source: Reuters

Brazil’s Economy Ministry warned on Friday that the economy will slip into recession next year and official interest rates could more than double unless Congress approves measures to reduce the deficit in the country’s pension system.

The warning comes days after President Jair Bolsonaro presented his ambitious social security reform plan to Congress, which aims to save over 1 trillion reais ($295 billion) in the next decade.

Overhauling the creaking social security system is seen as critical to shoring Brazil’s public finances, boosting investor confidence, fostering growth and keeping interest rates and inflation under control, most economists say.

In its first official forecast on the potential impact on the economy over the next five years of reform or no reform, the Economy Ministry laid out starkly contrasting scenarios.

“In the event of no pension reform, GDP growth in 2019 will be 1 percent lower and Brazil will enter recession in the second half of 2020, approaching the level of losses seen in the 2014-2016 period,” the ministry’s economic policy division warned in the report.

It said growth this year would slump to 0.8 percent from 1.3 percent last year — far weaker than the market consensus of around 2.5 percent and much worse than the 2.9 percent “best case” scenario of reform being passed.

Recessionary forces would also deepen over coming years if the pension system stays unchanged, the ministry said. The economy would shrink by 0.5 percent in 2020, by 1.1 percent in 2022 and as much as 1.8 percent in 2023.

It said benchmark interest rates will soar past 11 percent by year end from the current record low of 6.50 percent, and as high as 18.5 percent by 2023. Most economists expect rates to be on hold for the rest of this year.

But if reform is passed, growth will accelerate, job creation will surge and interest rates will fall, the Economy Ministry predicted.

The benchmark Selic rate could be reduced to a new low of 6.0 percent later this year while the economy could create as many as 8 million new jobs by 2023, it said.

Economists have already factored in pension reform into their forecasts and say the outlook is not that strong even if something is approved this year, most likely a diluted version of Bolsonaro’s bill.

Corporate and household balance sheets have not been fully repaired since the 2014-16 recession, the international picture is cloudy, and not everyone is convinced the new administration will deliver on its pledges.


Source: Reuters