Brazil’s GDP was supposed to grow 1% this year. Now economists are cutting it to 0.7%. And even that has more to do with the external picture than Brazil’s domestic economy, still reeling from back to back recessions.
Recently back from the G-20 meeting in Baden-Baden, Germany, Brazil’s central bank governor laid it out: Brazil is getting better, he says. Thank you, world.
“There is this feeling that our recuperation is coming from world growth. Everywhere you look there are signs that economic growth is good and even better than I imagined,” says central banker Ilan Goldfajn, fresh back from his trip to the G-20. On the domestic front, a precipitous drop in the inflation rate, by more than half in 12 months, has helped him and his monetary policy team slash interest rates to 13%.
Brazil is benefiting from higher commodity prices, higher demand from China — its biggest market — the U.S. and Europe. But double digit unemployment of 12%, a lackluster job market, and an ongoing political scandal involving roughly a third of congress and Brazil’s oil firm Petrobras promises to put further reforms on hold. The market has been holding out for changes to Brazil’s pension reform law, which coincided with a late 2016 constitutional amendment to cap spending. Without pension reform, that spending limit is basically useless.
“Clearly they got inflation on their side and they can always be more aggressive with the rate cuts because of it,” says Jamie Anderson, managing partner with Tierra Funds in Philadelphia.. “Last year was a bottoming for Brazil and you were smart and cavalier and got into the market you were rewarded for it.” Brazil was one of the hottest markets last year, booming after the impeachment of Dilma Rousseff of the scandal-clad Workers’ Party. Her replacement isn’t much better in the scandal category, and with prosecutors breathing down the necks of Dilma’s VEEP-turned-president, Michel Temer, it is with great difficulty that Brazil sees blockbuster reforms anytime soon. “I think Brazil can just drag along the bottom for a while,” Anderson says.
See: Brazil Is Still A Complete Mess — Forbes
The Group of 20 nations said in a communique on Saturday that they are “working to strengthen the contribution of trade to our economies.” While the U.S. didn’t get all it wanted — such as a explicit pledge to ensure trade is fair as Treasury Secretary Steven Mnuchin said — it was a much pared-down statement compared to last year and omits the pledge to “avoid all forms of protectionism.”
“We believe in free trade: we are one of the largest markets in the world, we are one of the largest trading partners in the world,” Mnuchin said. “Having said that, we want to re-examine certain agreements… And to the extent that agreements are old agreements and need to be renegotiated we’ll consider that as well.”
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