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COUNTRY INSIGHTS

Monetary Policy: A New Signal
BRAZIL ECONOMICS · Report · 26 Oct 2015

The COPOM kept the interest rate at 14.25%, but stopped indicating the intention to attain the inflation target of 4.5% in 2016. Because of the deepening recession and inflationary shock coming from the loosening of fiscal policy, the Central Bank announced it will maintain the SELIC rate at 14.2...

Might Renewed Growth Help the Fiscal Adjustment?
BRAZIL ECONOMICS · Report · 19 Oct 2015

Brazil today is facing a complex set of problems. Beside a moral crisis, the country is experiencing two other interconnected crises: a fiscal crisis and a political crisis. The government is weak and does not have sufficient support to carry out the needed fiscal adjustment, which negatively aff...

Resumption of Growth: Official Discourse versus Reality
BRAZIL ECONOMICS · Report · 19 Oct 2015

The economic team insists that the Brazilian economy will start recovering soon, boosting tax revenues, which is necessary to generate primary surpluses. But a large mass of data indicates exactly the opposite. Two of these indicators are household consumption and GDP in the service sector. Numbe...

The Fiscal Disaster and Risk of Populism
BRAZIL ECONOMICS · Report · 13 Oct 2015

Brazil needs a broad and deep fiscal policy reform. However, over the past 10 months, the government, politically weakened, has only managed: to place an insufficient amount of budget allocations on contingency; to enact a timid reform of the rules on unemployment insurance, salary bonus and wido...

Synthesis of the Brazilian Economy
BRAZIL ECONOMICS · Report · 06 Oct 2015

By sending a deficitary budget bill for 2016 to Congress, the government signaled it has thrown in the towel regarding even a modicum of fiscal responsibility, and at the start of September S&P lowered the country’s rating from investment grade. The consequent reduction of external credit will de...

Recent Data Indicate the Recession is Getting Worse
BRAZIL ECONOMICS · Report · 05 Oct 2015

The latest data confirm what was until recently only a suspicion – that GDP in the third quarter contracted by around 1%, or an annualized figure of 4%. The most recent numbers also undermine the hope that GDP might stabilize in the fourth quarter. Both the tightening of financial conditions and ...

Should the Central Bank Exchange its Currency Swaps for Reserves?
BRAZIL ECONOMICS · Report · 01 Oct 2015

Interventions in the foreign exchange market are a controversial subject. While small interventions trying to dampen excessive volatility are one thing, heavy interventions to change the level of the exchange rate, when the economy is suffering from extreme macroeconomic imbalances, is quite anot...

Business Credit Decelerating Intensely
BRAZIL ECONOMICS · Report · 28 Sep 2015

Companies are facing serious difficulties in obtaining financing. New loans to firms have been declining since the first months of 2014, and this trend has been worsening recently. The increasing Brazil risk and loss of investment grade makes access to foreign credit harder. This means the recess...

A New Chapter in the Fiscal Adjustment Drama
BRAZIL ECONOMICS · Report · 21 Sep 2015

Recognizing the serious error of sending to Congress a budget bill with a primary deficit of 0.5% of GDP, which prompted S&P to downgrade Brazil’s credit rating, the administration sent a package of measures to Congress aiming to achieve a primary surplus of 0.7% of GDP in 2016. It did not obtain...

The Downgrade of the Credit Rating
BRAZIL ECONOMICS · Report · 14 Sep 2015

To anyone who pays a minimum attention to the indications given by Brazil’s CDS quotations, it has long been clear that the country – sooner or later – would lose its investment grade rating. Last month, its quotations had already climbed well off the average relationship between the S&P credit r...

Industrial Production and Weakening of the Real
BRAZIL ECONOMICS · Report · 08 Sep 2015

The steep drop of industrial output in July (Graph 1) threw another bucket of cold water on the estimate of GDP for the third quarter, which will almost certainly show further contraction. On the demand side, neither household consumption nor gross fixed capital formation changes this scenario. T...

GDP in the Second Quarter: A Long and Deep Recession
BRAZIL ECONOMICS · Report · 31 Aug 2015

The GDP contraction of 1.9% in the second quarter (Graph 1) confirmed the expectation that the recession would deepen. Because of the negative carry-over to the rest of the year and all the evidence that further contraction will happen in the third quarter, GDP will likely decline by 3% in 2015 a...

Political Crisis and Loss of Degrees of Freedom in Conducting Economic Policy
BRAZIL ECONOMICS · Report · 27 Aug 2015

Against the backdrop of stagflation and a politically weak government, the Central Bank is facing two challenges. The first is the need to keep interest rates high for longer, even in face of the deepening recession, which raises the political pressures for easing. The second is the task of absor...

Synthesis of the Brazilian Economy
BRAZIL ECONOMICS · Report · 27 Aug 2015

All available indicators show the economy has been decelerating drastically, and the government, politically fragile, has little maneuvering room to try to reverse this trajectory. The economic crisis, political crisis and revelations from the Lava Jato investigation have not yet peaked, meaning ...

New Expansion of Credit from Public Banks?
BRAZIL ECONOMICS · Report · 24 Aug 2015

The depth of the recession is causing increasing alarm by the government, which has started to react. After reducing the fiscal effort promised for 2015 and coming years, it announced that public banks – Banco do Brasil and Caixa Econômica Federal – will expand the supply of credit to certain sec...

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