Brazilian waxing and waning

The Data Team – The Economist, 10/30/2015

IN THE past few years Brazil’s economy has disappointed. It grew by 2.2% a year, on average, during President Dilma Rousseff’s first term in office in 2011-­14, a slower rate of growth than in most of its neighbours, let alone in places like China or India. Last year GDP barely grew at all. It contracted by 2.6% in the second quarter, compared to the same period last year, and is expected to shrink by 3% in 2015.

Household consumption has registered the first drop, year-on-year, since Ms Rousseff’s left-wing Workers’ Party (PT) came to power in 2003. At the same time, public spending has surged. In 2014, as Ms Rousseff sought re-election, the budget deficit doubled to 6.75% of GDP (the bill has since swelled by another 2.5 percentage points). For the first time since 1997 the government failed to set aside any money to pay back creditors. Its planned primary surplus for this year, which excludes interest owed on debt, of 1.2% of GDP is now expected to turn into a 0.9% deficit.

Brazil’s gross government debt of 66% may look piffling compared to Greece’s 175% or Japan’s 227%. But Brazil’s high interest rates of around 14% make borrowing costlier to service. Debt payments eat up more than 8% of output. To let businesses and consumers borrow at less exorbitant rates, public banks have increasingly filled the gap, offering cheap, subsidised loans. These went from 40% of all lending in 2010 to 55%.

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Brazil analysts boost inflation, interest rate calls for 2016

Matthew Malinowski and David Biller – Bloomberg Business, 10/26/2015

Brazil analysts forecast faster inflation and see less room for cuts in the benchmark rate for 2016, as political turmoil hobbles efforts to fortify fiscal accounts and avoid a second sovereign downgrade to junk.

Brazil’s Selic rate will be 13 percent at the end of next year, according to the Oct. 23 central bank survey of about 100 analysts. That’s up from the previous week’s estimate of 12.75 percent and marks the third straight week the forecast has risen. Inflation next year will reach 6.22 percent, the analysts said, up from 6.12 percent the previous week.

The outlook for faster inflation appears in the first Focus survey since the central bank altered its monetary policy communique to remove language indicating a goal of slowing consumer price increases to target by year-end 2016. Renewed political friction threatening the government’s fiscal adjustment along with the recession has clouded the outlook for the nation’s credit rating, which Standard & Poor’s downgraded to junk in September.

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Political risk drives Brazil’s markets

Joe Leahy – Financial Times, 10/20/2015

If Brazil’s President Dilma Rousseff had wanted to know the cost of suddenly losing her respected finance minister Joaquim Levy, she received the answer last Friday.

Rumours spread just as traders were going home for the weekend that Mr Levy was quitting. Between the start of the rumour and the government’s official denial one or two hours later, the real depreciated about 3 per cent against the dollar to R$3.92.

The episode highlighted the new investment reality in Brazil — that Latin America’s largest capital market has become driven by political risk. Before the latest rumours concerning Mr Levy, the market was being buffeted by speculation over whether Ms Rousseff of the left-leaning Workers’ Party, known as PT, would be impeached.

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Brazil bull who got it right in 2002 says this time no different

Julia Leite and James Crombie – Bloomberg Business, 10/18/2015

The selloff punishing Brazilian markets in recent months isn’t fazing Jerome Booth. He’s seen it before and says just like then, it’s way overdone.

Yes, Brazil has serious problems. The country’s “a mess,” he says, with a massive corruption investigation at state-run oil company Petroleo Brasileiro SA, a worsening fiscal outlook, the steepest recession in 25 years and a political system so fractured that needed reforms just aren’t getting done. That’s not to mention a credit-rating cut to junk and the currency’s plummet to a record low.

But there’s no chance the government is going to default, and politicians eventually will find the will to push through measures to shore up the budget and restore growth, Booth said in an interview in New York. The panic among investors is excessive, just like 13 years ago when bond prices collapsed along with the currency amid concern the front-runner in presidential elections would repudiate the government’s debt, said Booth. He was then head of research for Ashmore Investment Management, at the time one of the biggest dedicated emerging-market sovereign bond holders.

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Fitch downgrades Brazil to one notch above junk

Kenneth Rapoza – Forbes, 10/15/2015

Fitch Ratings decided to keep Brazil investment grade, but the outlook for the credit watchdog has turned negative. Fitch downgraded Brazil’s long-term foreign credit rating to BBB- from BBB on Thursday, placing it one notch above junk bond status.

Standard & Poor’s cut Brazil’s credit rating to speculative grade earlier this year.

Fitch said that rating downgrade reflects Brazil’s rising government debt burden, increased challenges to fiscal consolidation and a worsening economic growth backdrop. The difficult political environment is hampering progress on the government’s legislative agenda and creating a negative feedback loop for the broader economy.

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Interest rate rise: Fed move threatens to extend Brazil’s woes

John Paul Rathbone – Financial Times, 9/8/2015

The president may be impeached as part of a corruption scandal, the economy is in recession, unemployment is rising, the currency has collapsed and local interest rates have been jacked up to quash inflation. The last thing that Brazil needs is higher US interest rates as well — even if most Brazilians have more pressing domestic concerns on their mind.

“It’s crazy. Brazil is back to the past again. It’s broken. We can’t even think about getting into overdraft,” said Raul Shinohara, a 61-year-old engineer, lamenting that his credit card charges an annual rate of 372 per cent.

“I hope things get better because if they don’t, it is going to get complicated,” added Maria Lucia Santos, a 58-year-old state sector employee, as she window-shopped in São Paulo.

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