Synthesis of the Brazilian economy

BRAZIL ECONOMICS - Report 03 Dec 2018 by Affonso Pastore, Cristina Pinotti, Marcelo Gazzano and Caio Carbone

By nominating Judge Sergio Moro to be the new minister of justice, with carte blanche to propose a program to fight corruption and organized crime, Bolsonaro allayed fears that his oft-times antidemocratic utterances made during the campaign might be put into practice. At the same time he benefited from the popularity of the central figure of the Lava Jato (Car Wash) probe, responding to voters’ demand to continue the effort to combat corruption. The second pillar of the new government, known before the election results, is based on delivering economic command to Paulo Guedes. After the relief resulting from the defeat of the PT, which brought a positive reaction from the markets, the absence of definition about the depth of the reform agenda has been generating caution. The deterioration of the global growth picture, hurting the country’s terms of trade, makes the exchange rate scenario more challenging, reducing space for strong appreciation even if the most benign scenario regarding the reforms prevails. All the same, the tamed inflation should keep the interest rate low for a longer period, meaning that conditions are favorable for better cyclical recovery.

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