Brazil’s economy rises above the political storm

In our view, the extraordinary thing about Latin America’s largest economy is not the political turmoil that has more or less been par for the course in recent years – but rather the country’s resilience in the face of such upheavals. Far from hitting the buffers, the economy continues to make headway, while capital inflows have remained steady. Year-to-date, for example, Brazilian equities returned 21.1%, while over 12 months the return has been 24.6%. This compares well with both developed market equities (the UK, for instance, returned 11.8% year-to-date and over 12 months) and many other emerging market countries (Colombia, for example, with 14.4% year-to-date and 11.0% over 12 months)[1].

Two things have helped steady the ship. First, timely action from the Central Bank of Brazil brought inflation under control. Second, a reform programme under the auspices of Henrique Meirelles, finance minister, has done enough to give investors confidence in Brazil’s forward trajectory. Here, a key step is a plan to overhaul the country’s generous pensions system. Should Congress approve the plan, this should help address Brazil’s budget deficit and provide a boost to the economy.

Rogério Poppe – ARX, a BNY Mellon company

[1] FTSE All World Index, US$ as at 31 August 2017

In our view, the extraordinary thing about Latin America’s largest economy is not the political turmoil that has more or less been par for the course in recent years – but rather the country’s resilience in the face of such upheavals. Far from hitting the buffers, the economy continues to make headway, while capital inflows have remained steady. Year-to-date, for … read more

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Brazil: A turning point?

The winds of political change are blowing across South America. The process began in Argentina with the election of Mauricio Macri in 2015 as successor to left-leaning president Cristina Fernández de Kirchner. In Venezuela, socialist president Nicolás Maduro is under increasing pressure following a catastrophic slowdown in the country’s oil-dependent economy.

Now, in Brazil we believe the ousting of Dilma Rousseff and the appointment of centrist vice-president Michel Temer as her successor could herald a new dawn.

Markets have already begun to respond favourably, with interest rate futures, the Brazilian real and the benchmark Bovespa stock index all recovering from last year’s nadir.

The situation remains delicate but we are optimistic. We believe Temer’s recent appointment of a credible economic team, coupled with moves towards wider political and economic reforms will help stabilise Brazil within the year and set the scene for sustainable annual GDP growth of 2.5%-3.0% thereafter.

 Alexander Gorra – ARX, a BNY Mellon company

The winds of political change are blowing across South America. The process began in Argentina with the election of Mauricio Macri in 2015 as successor to left-leaning president Cristina Fernández de Kirchner. In Venezuela, socialist president Nicolás Maduro is under increasing pressure following a catastrophic slowdown in the country’s oil-dependent economy. Now, in Brazil we believe the ousting of Dilma … read more

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