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COUNTRY INSIGHTS

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...

Better Performance of the External Accounts
BRAZIL ECONOMICS · Report · 17 Aug 2015

The good news about the Brazilian economy in recent months has been the decline in the current account deficit, which in annualized monthly terms is now only half of the US$ 100 billion level observed in 2014 (Graph 1). The improvement is concentrated in three accounts, which we examine in more d...

Political Crisis, Increased Risk and Official Reactions
BRAZIL ECONOMICS · Report · 10 Aug 2015

In recent weeks, Brazil’s CDS quotations have risen steeply. This movement has been prompted not only be the loosening of fiscal policy, reflected in the new primary surplus targets, which has raised the likelihood the country will lose its investment grade rating, but also by the worsening polit...

Sharp Deceleration of Credit
BRAZIL ECONOMICS · Report · 03 Aug 2015

One of the (many) reasons the current recession will be longer than the one in 2008-2009 is the behavior of credit. Growth of the credit stock started to slow in early 2011, and has been stagnant in 2015, with lending by both private and public banks decelerating. The flow of new loans to both bu...

The Monetary Policy Dilemmas
BRAZIL ECONOMICS · Report · 03 Aug 2015

Last week the COPOM ended the tightening cycle with one more hike of 50 basis points, taking the SELIC rate to 14.25%, where according to the communiqué it will remain “for a sufficiently prolonged period.” But how long might that be? On the one hand, the Central Bank wants to bring inflation dow...

The Falling Credibility of Economic Policy Execution
BRAZIL ECONOMICS · Report · 27 Jul 2015

Executive Summary Because of the declining tax revenue caused by the recession and the only partial approval by Congress of the proposed spending cuts, it was evident for some time that the primary surplus target of 1.1% of GDP for 2015 would not be met. But there was belief in a moderate redu...

The Disastrous Loosening of Fiscal Policy
BRAZIL ECONOMICS · Report · 27 Jul 2015

Last week, the finance and planning ministers announced that the primary surplus target for 2015 has been reduced from 1.1% to 0.15% of GDP. The targets for 2016 and 2017, which were previously set at at least 2% of GDP, have also been lowered, to 0.7% and 1.3% of GDP, respectively. None of these...

The Recession Deepens
BRAZIL ECONOMICS · Report · 21 Jul 2015

A new set of information published last week confirms that GDP in 2015 will contract by around 2% (or a bit more). Although the IBC-Br for May remained stable (after a decline of 0.9% in the previous month), the carry-over to the second quarter indicates a dip of 1.6% (or 6.4% in annualized terms...

Inflation and the Labor Market
BRAZIL ECONOMICS · Report · 13 Jul 2015

With the current real interest rate, inflation will decline significantly in 2016. But for the time being, the trend is still upward: in the 12 months through June it stands at 8.89% and the consensus projections for 2105 are a bit higher than 9%. That growth is only partly due to adjustment of a...

Moments of Definition
BRAZIL ECONOMICS · Report · 13 Jul 2015

Executive Summary The fiscal adjustment has reached a critical moment. To reduce the debt/GDP ratio, Brazil needs higher primary surpluses than promised by the government. Without political support for greater spending cuts, which cannot be restricted only to discretionary spending, the govern...

What is the Risk of Brazil Losing its ‘Investment Grade’ Rating?
BRAZIL ECONOMICS · Report · 06 Jul 2015

Executive Summary Brazil’s public debt as a proportion of GDP is lower than many other countries that have investment grade status, but almost none of these need primary surpluses to reduce the debt/GDP ratio. On the contrary, due to the low interest rates in those countries, that reduction ca...

What is the Trade Balance Trend?
BRAZIL ECONOMICS · Report · 06 Jul 2015

We recently presented empirical evidence that the depreciation of the nominal exchange rate does not assure better performance of exports. The reason is not a supposed inflexibility of exports to the stimulus of a weaker currency, but rather the fact that since 2011 the deprecation of the exchang...

The Weakening of the Labor Market According to Three Data Sources
BRAZIL ECONOMICS · Report · 29 Jun 2015

The result of the Monthly Employment Survey (PME) published last week strengthens the perception that the job market is getting weaker. The PME estimates the figures on employment in the formal and informal sectors in six metropolitan regions, and according to the latest results the 12-month grow...

Strong Contraction of Credit
BRAZIL ECONOMICS · Report · 26 Jun 2015

Executive Summary Since the level of nonperforming loans started to creep upward in late 2011-early 2012, private banks have been extremely cautious in extending new credit, both to consumers and companies. The most recent data indicate sharper contraction of non-earmarked credit and less impe...

Qualitative Indicators of the Contraction of Investments
BRAZIL ECONOMICS · Report · 22 Jun 2015

The current recession differs from that in 2008-2009: it will be less severe but will last a good deal longer. The dip in the IBC-Br for April is an additional indicator that the contraction of GDP in the second quarter of 2015 will be more intense than in the first three months (Graph 1). There ...

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