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COUNTRY INSIGHTS

The Risks and Politics
BRAZIL ECONOMICS · Report · 04 Aug 2014

The industrial output data for June virtually guaranteed that GDP will contract in the second quarter of 2014, and that the Brazilian economy is very near recession. Certainly the drawdown of inventories accentuated the drop in the production of durables (for instance, automobile stocks are at re...

Current Account: Temporary Relief Due to the World Cup
BRAZIL ECONOMICS · Report · 28 Jul 2014

The balance of payments accumulated over the past 12 months in June showed the smallest deficit since September last year, -US$ 5.2 billion, a result a small dip in the current account deficit to US$ 81 billion and an increase in the surplus in the financial capital account to US$ 76 billion (Gra...

Monetary Policy on the High Wire
BRAZIL ECONOMICS · Report · 28 Jul 2014

There was a good deal of suspense regarding the minutes of the last COPOM meeting. Since inflation continues hovering near the top of the target interval and there are substantial repressed pressures both from the temporary stability of the real and delayed adjustments of administered prices, it ...

New Evidence of Decelerating Economic Activity
BRAZIL ECONOMICS · Report · 21 Jul 2014

The proxy for GDP computed by the Central Bank (IBC-Br) brought more evidence that Brazil’s economic growth is decelerating. With the decline of 0.2% in May, the carry over to the second quarter is -0.1%, and in light of all the signs of further weakening in June, the most probable outcome is tha...

More Signals of Falling Industrial Production
BRAZIL ECONOMICS · Report · 14 Jul 2014

Although the unemployment rate remains at a historically low level, the job market is clearly weakening. Net hiring has been virtually stagnant and the jobless rate only has been holding steady because of the decline in the participation rate, which annuls the growth of the labor force (economica...

How Far can the Central Bank go to Secure the Exchange Rate?
BRAZIL ECONOMICS · Report · 14 Jul 2014

Executive Summary In situations where the exchange rate is near equilibrium (the current account deficits are being financed by capital inflows not artificially stimulated), but is highly volatile, interventions in the foreign exchange market are perfectly acceptable. They dampen the volatilit...

Decline of Confidence in Industry Points to Further Deceleration of Growth
BRAZIL ECONOMICS · Report · 07 Jul 2014

The dip of 0.6% in industrial production in May is one more factor that indicates mediocre GDP growth in 2014. This result leaves a negative carry over of 1.2% to the second quarter, meaning the second-quarter figures will probably show further contraction of industrial output (which has been fal...

The Exchange Rate as an Instrument to Control Inflation
BRAZIL ECONOMICS · Report · 03 Jul 2014

Executive Summary The Central Bank has been using interventions in the future foreign exchange market as an instrument to control inflation. With the ongoing deceleration of economic growth while inflation hovers near the top of the target interval, Brazil is experiencing a form of stagflation...

Inflation Report: Acknowledging Higher Inflation
BRAZIL ECONOMICS · Report · 30 Jun 2014

Central Bank publishes systematically its assessment of the probability that inflation will exceed the upper bound of the target interval in the current year and, more recently, since the end of 2009, publishes the same probability for the following year. This estimate for 2014 is 46% (in the ref...

Inflation: No Change in the Trajectory
BRAZIL ECONOMICS · Report · 23 Jun 2014

The IPCA-15 for June rose 0.47%, virtually the same as the May IPCA (0.46%). It was also higher than the consensus forecast, which was for further deceleration. Inflation over the past 12 months is now 6.41% and it’s just a question of time before it creeps above the upper limit of the target int...

Losing Hope about Growth
BRAZIL ECONOMICS · Report · 16 Jun 2014

Since taking office, the current government has been consistently promising a return to vigorous growth, but these promises have never been realized. At the start of the Rousseff administration, the promise was for growth of at least 4%, and this was the consensus projection of the market as refl...

Aggravation of Imbalances or Pursuit of Reforms?
BRAZIL ECONOMICS · Forecast · 16 Jun 2014

Executive Summary The scenario for the rest of 2014 has little room for uncertainties, but the picture is more complicated for 2015. In preparing the projections of this Quarterly Outlook we have assumed that President Rousseff will be reelected and will continue the current economic policy re...

Disappointing Growth: The Role of Credit
BRAZIL ECONOMICS · Report · 09 Jun 2014

The weak GDP growth in the first quarter threw cold water on any remaining optimism about growth in 2014. On the supply side, there are no signs that industry can reverse the current situation, and on the aggregate demand side, neither investments nor household consumption nourish hopes of better...

Frustration Over GDP Growth
BRAZIL ECONOMICS · Report · 02 Jun 2014

Nobody had the illusion that GDP growth in the first quarter would bring cheer to the government, but the result was even more frustrating than many imagined: growth was only 0.2% (0.7% annualized), worse than the 0.4% in the last quarter of 2013 (Graph 1). Of even more concern than the extremely...

Understanding the Paradox of the Labor Market
BRAZIL ECONOMICS · Report · 26 May 2014

There is a contrast in the Brazilian labor market: on the one hand, the unemployment rate has been holding steady at minimum historic levels, indicating a situation near full employment, while on the other hand new hiring has been growing at a pace near zero, indicating weakening. Indeed, the job...

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