March 27, 2015
Jeffrey T. Lewis and Rogerio Jelmayer – The Wall Street Journal, 3/27/2015
Brazil’s economy posted in 2014 its worst performance by far under President Dilma Rousseff’s administration, a blow to her prestige as her government works to regain credibility with markets and pass an austerity program through Congress.
The country’s gross domestic product grew just 0.1% in 2014 from 2013, and expanded 0.3% in the fourth quarter from the third, Brazil’s statistics agency said Friday. GDP shrank 0.2% in the fourth quarter of 2014 from the same period a year earlier.
The agency changed the way it calculates GDP starting in the fourth quarter, including activities such as investment in research and development for the first time, to bring the methodology more in line with international standards.
March 23, 2015
Financial Times, 3/22/2015
Brazil is in crisis. Earlier this month, more than 1m protesters took to the streets to voice their discontent. Much of the country suffers water rationing following a long drought. Petrobras is engulfed in an epic corruption scandal that saw up to $10bn embezzled from the oil company. The economy is likely to shrink this year and perhaps next year as well, which would be its worst performance since 1931. Approval ratings for Dilma Rousseff, the president, have slid to 13 per cent, the lowest on record. It seems only yesterday that the country was feted as the new best thing. So its fall from grace has been spectacular. Sadly, the situation is likely to get worse still. The central question is whether Brazil’s institutions hold as it does.
A large part of the blame lies with Brazil itself. For much of the 2000s, it enjoyed an unprecedented commodity boom. This bolstered its terms of trade, swelled government revenues, boosted domestic wages and propelled a domestic credit boom. When investors clamoured to buy into Petrobras’s 2010 $70bn equity offering — the world’s largest — Brazil really did seem to be o melhor país do mundo, the best country in the world. In reality, it was riding the steroid fix of a credit boom in which Brazil reaped the benefits of globalisation without any of its disciplines. Now the process is going into reverse.
The collapse in the currency, down almost a third against the dollar in just six months, is a dramatic repricing of the economy. But the trade-weighted real exchange rate, which adjusts for inflation, is still higher than its 20-year average. Unit labour costs are also higher, in dollar terms, than in 2010. So the currency is likely to weaken more.
March 20, 2015
Simon Romero – The New York Times, 3/20/2015
President Dilma Rousseff ran for office declaring that she would harness an oil bonanza in Brazil to supercharge the economy while avoiding the corruption and mismanagement that have plagued other oil-rich countries in the developing world.
But less than three months into her second term as president, Ms. Rousseff is fighting for her political survival as Petrobras, the national oil company she oversaw and has championed, reels from a colossal bribery scandal.
Compounding her problems is the prospect that the economy could shrink in 2015 for the second consecutive year, the first such contraction here since the onset of the Great Depression in 1929 and 1930.
March 19, 2015
Patrick Gillespie – CNN Money, 3/17/2015
Over a million Brazilians protested in the streets Sunday, calling for the impeachment of President Dilma Rousseff.
A massive corruption case involving the president helped spark the protests, but Brazilians also marched out of frustration that Brazil’s economic boom is over.
South America’s largest economy was last decade’s emerging market darling. Now it’s edging toward recession and its currency is losing value quickly. The corruption scandal and economic collapse are creating a perfect storm for public unrest.
March 10, 2015
The Brazilian real moved 1 percent up and down in less than two hours of trading on Tuesday as a combination of global headwinds and domestic problems made the currency vulnerable to wild swings.
The real opened more than 1 percent lower and hit 3.1722 per dollar, its weakest in more than 10 years, before erasing losses to rise more than 1 percent to 3.097.
It last traded at 3.1244, 0.2 percent stronger than Monday’s close.
March 6, 2015
Rogerio Jelmayer – The Wall Street Journal, 5/6/2015
Consumer prices in Brazil rose more than expected in February, putting the 12-month rate at the highest level in nearly 10 years and underlining one of the main challenges facing Latin America’s largest economy in the year ahead.
Brazil’s consumer-price index, the IPCA, was up 1.22%, compared with a rise of 1.24% in January, the Brazilian Institute of Geography and Statistics, or IBGE, said Friday.
The rolling 12-month IPCA increased 7.70% through February, up from 7.14% in January, remaining well above the 6.5% ceiling of the central bank’s target range. The 12-month figure marked the highest level since May 2005, when it reached 8.05%.
March 6, 2015
Michael Lingenheld – Forbes, 3/5/2015
Whenever there’s a sell-off after bullish news, it’s typically a sign of more pain to come. Brazil’s central bank raised benchmark interest rates to 12.75% on Wednesday in order to quell inflation, but the Real (BRL) dropped even further. The Real has now declined more than 11% YTD relative to US dollars – the worst performing currency in the world outside of Ukraine. Inflation in Brazil was running above 2,000% Y/Y as recently as the early 1990s, so it’s rationale for the central bank to make taming prices their priority #1, but the rapidly slowing economy is desperate for a boost.
Inflation above 7% Y/Y has eroded purchasing power in a country that relies on private consumption for 50% of GDP. Economists are currently projecting a 0.5% contraction in GDP this year followed by 1.5% growth in 2016 – hardly the stuff of a burgeoning superpower. Global investors have taken notice, pulling $1.3 billion from Brazilian bond and stock funds since the start of this year. The stagflationary environment could get worse before it gets better.
Despite lackluster growth, local prices keep rising for two reasons beyond the weak Real and rising taxes. First, the minimum wage in Brazil is adjusted annually depending on economic conditions. At this point the minimum wage is really just a political tool used to buy votes since it has outpaced inflation dramatically over the past decade. President Dilma Rouseff increased the minimum wage 8.83% for 2015 last June; conveniently the announcement was made three months before her re-election.