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COUNTRY INSIGHTS

What Does Industrial Production Say About the Speed of Recovery?
BRAZIL ECONOMICS · Report · 06 Feb 2017

Brazil is nearing the end of the long and deep recession that began in the second quarter of 2014. In phases like this it is common for some sectors to start recovering while others are still contracting. This is one of the reasons to avoid making inferences about economic trends based on high-fr...

What Can be Expected Regarding the Behavior of Credit?
BRAZIL ECONOMICS · Report · 30 Jan 2017

Although further contraction of GDP in the first quarter cannot be discarded, there are already clear signs that the economy is ready to start a period of recovery. The continuity of the reforms and indications that the monetary easing will be intense have improved the risk perceptions and streng...

Inflation on a Steep Downward Path
BRAZIL ECONOMICS · Report · 23 Jan 2017

The most recent results show that, after all, there is nothing wrong with Brazilian inflation. In the second half of 2016, claims were frequently heard that Brazil suffered from a serious pathology – the strong inflation inertia – which kept prices rising steeply even during a long and deep reces...

How Perspectives Changed in 2017 in Relation to a Year Ago?
BRAZIL ECONOMICS · Report · 16 Jan 2017

At the start of 2016, inflation was higher than 10%; fear of “fiscal dominance” had raised the quotation of Brazil’s 10-year CDS above 600 basis points and caused the real to depreciate to R$4.00/US$; and the most optimistic GDP projections were for contraction between 3% and 4%. Now as 2017 gets...

The Monetary Easing Cycle Intensifies
BRAZIL ECONOMICS · Report · 16 Jan 2017

At the last COPOM meeting, the Central Bank not only cut the SELIC rate by 75 basis points, it also indicated that until a contrary indication this will be the pace of cuts for the coming meetings. This dragged down the longer term interest rates. It was a correct decision in light of the steep d...

Economic Activity is Still Weak
BRAZIL ECONOMICS · Report · 09 Jan 2017

In our last Quarterly Outlook we projected a slow recovery of economic activity starting in the second quarter of 2017. Despite the slight improvement in some indicators, the most recent data still show signs of contraction of both household consumption and gross fixed capital formation. GDP prob...

Synthesis of the Brazilian Economy
BRAZIL ECONOMICS · Report · 12 Dec 2016

Although we expected an increase in the political tension around the approval of the spending cap PEC in the Senate, we did not imagine that the political conflict would spill over into a confrontation between the legislative and judicial branches, with reputational costs that are hard to assess....

Fiscal Adjustment: Next Steps
BRAZIL ECONOMICS · Report · 12 Dec 2016

With the likely final approval by the Senate (second floor vote) of the PEC that freezes spending in real terms, the government will have finished the first step of a profound fiscal adjustment. The second step is the social security reform, with the establishment of a minimum retirement age and ...

Political Turbulence and Worse Growth Perspectives
BRAZIL ECONOMICS · Forecast · 06 Dec 2016

The Temer administration has won some important victories, in particular the wide approval margins in the two floor votes in the Chamber of Deputies and first one in the Senate on the proposed constitutional amendment (PEC) to cap spending growth in real terms. But alongside this unquestionable s...

Monetary Policy in the Midst of a Profound Recession
BRAZIL ECONOMICS · Report · 05 Dec 2016

The Central Bank’s only mandate is to meet the inflation target. But its decisions are not made in a vacuum. Rather, it takes the decisions prying to minimize a loss function involving two costs: the distance of (projected) inflation from the target; and the distance of GDP in relation to potenti...

How Intense will the Monetary Easing Cycle be?
BRAZIL ECONOMICS · Report · 28 Nov 2016

To gauge the intensity of the interest rate cut, the Central Bank will observe three sets of information, regarding: a) inflation and economic activity; b) approval of fiscal adjustment measures; and c) the effects of “external shocks” that alter the trend of the exchange rate. In the past 45 day...

External Shock and Increased Risks
BRAZIL ECONOMICS · Report · 21 Nov 2016

The depth of the recession and clear signs of waning inflation until recently indicated a growing probability that the Central Bank could increase the pace of lowering the interest rate. But with the election of Donald Trump, capital that was going to emerging countries has shifted back to the Un...

Facing Challenges
BRAZIL ECONOMICS · Report · 16 Nov 2016

Despite important political victories, such as approval in the Chamber of Deputies of the proposed constitutional amendment (PEC) to cap real spending growth, in the next fiscal policy moves the government will face substantial difficulties. The first is the worse outlook for growth in 2017, whic...

The Trump Effect
BRAZIL ECONOMICS · Report · 14 Nov 2016

Although it is too soon for a precise evaluation, Donald Trump’s election in the United States has altered the scenario for emerging markets. The bet on greater fiscal stimulus and an increase in infrastructure investments has changed the forecasts regarding elevation of the interest rate and att...

The Frustrated Bet on Fast Return to Growth
BRAZIL ECONOMICS · Report · 07 Nov 2016

The most recent data on economic activity indicate GDP contracted again in the third quarter. Due to the shrinkage of world trade and weak commodity prices, there is no hope for exports to act as a force to drive recovery. Nor can this be expected from household consumption, which continues being...

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