Frustration over infrastructure and despondency regarding monetary easing

BRAZIL ECONOMICS - Report 08 Jul 2019 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

The global economy is clearly decelerating its growth rate, but the prices of assets have been appreciating. The same pattern applies to Brazil, where there are no forces on either the aggregate demand or supply side to pull the economy out of the doldrums. The IBOVESPA has already risen above the 100,000 point mark and continues to be bullish, accompanied by a steep decline of the yields on NTN-Bs, which have reached nearly 3.5% for maturities of 2030 and 2040, with a downward path similar to that of US Treasuries. Brazil, like the rest of the world, is experiencing a period of low interest rates and sluggish economic growth alongside appreciation of asset prices. Besides the expected cut in the interest rate, the only instrument that could stimulate recovery in Brazil is infrastructure investments by the private sector, in the form of concessions. The government has been working on an excellent program of investments in railroads, highways, ports, airports and transmission lines, among others, which will be fundamental of increase productivity. However, given their complexity, there is no outlook for effects from their execution either this year or next. Therefore, all indications are for continuation of very slow growth alongside low interest rates.

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