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COUNTRY INSIGHTS

No Relief
BRAZIL ECONOMICS · Report · 18 Nov 2024 · 1 response

Economic activity in the third quarter remained robust, although less dynamic compared to the first half of the year. Our forecasts puts GDP growth close to 0.8% in the third quarter, once again above potential. Consequently, and aligned with a continuously declining unemployment rate, we expect ...

COPOM Watch: Bad Omens
BRAZIL ECONOMICS · Report · 12 Nov 2024

While the statement following last week’s Copom meeting was virtually identical to the previous meeting's (albeit with a slightly more critical tone toward fiscal policy), the minutes brought some changes compared to its previous incarnation. These changes, while not suggesting any commitment reg...

A (Near) Perfect Storm
BRAZIL ECONOMICS · Report · 12 Nov 2024

Inflation forecasts point to a high likelihood of exceeding the upper limit of the target this year. Meanwhile, the Central Bank's inflation projection for the 12 months ending in June 2026, the relevant horizon for monetary policy, is 3.6%, indicating the need for an adjustment of approximately ...

Between a Rock and a Hard Place
BRAZIL ECONOMICS · Report · 07 Nov 2024 · 2 responses

There were no surprises in the Copom’s decision: as expected, the committee raised the target for the benchmark interest rate by 0.50 percentage points, from 10.75% to 11.25% per year, without providing further indications about its next steps or the total extent of the monetary tightening cycle....

Synthesis of the Brazilian Economy
BRAZIL ECONOMICS · Report · 04 Nov 2024

OVERVIEW THE CONFIDENCE CRISIS STILL WAITS FOR AN ADEQUATE RESPONSE The decline of the Workers' Party (PT) in the municipal elections at the end of October added a significant element to the political landscape. The major winners were the Social Democratic Party (PSD), known as the “Kassab...

Depending on the Kindness of Strangers
BRAZIL ECONOMICS · Report · 28 Oct 2024 · 1 response

Recent behavior of the U.S. dollar and interest rates indicates that external factors' contribution to the appreciation of Brazil's exchange rate are likely to be lower than expected. Along with data showing robust activity and labor market conditions, increased odds of Donald Trump winning the p...

Not So Fast
BRAZIL ECONOMICS · Report · 21 Oct 2024

After robust growth early in the year, economic activity shows some signs of slowing down in high-frequency data, largely due, we believe, to changes in fiscal policy dynamics. The first half of the year was marked by a fast expansion of public spending, which has cooled off more recently. The la...

You Reap What You Sow
BRAZIL ECONOMICS · Report · 15 Oct 2024

Recently, the Treasury has faced difficulties in placing fixed-rate or inflation-linked bonds, as their prices embed a high-risk premium. As a result, the share of Selic-linked bonds has grown rapidly, worsening the composition of public debt by reducing maturities and increasing sensitivity to i...

Synthesis of the Brazilian Economy
BRAZIL ECONOMICS · Report · 07 Oct 2024

OVERVIEW THIS TIME IS DIFFERENT (?) Moody's decision to raise Brazil's credit rating from Ba2 to Ba1, with a positive outlook, bringing the investment grade carrot closer, was surprising and even awkward. The awkwardness stems from the risks associated with betting on a radical shift in fi...

Fiscal Easing Complicates the Central Bank’s Work
BRAZIL ECONOMICS · Report · 30 Sep 2024

The economy is growing faster than its potential, as confirmed by labor market data. In August, the unemployment rate, adjusted for seasonal effects, reached the lowest level in the series. However, the preliminary inflation data for September showed favorable signs, which we believe are temporar...

The Firm Tone of the Minutes and the Next Steps of the COPOM
BRAZIL ECONOMICS · Report · 25 Sep 2024

The COPOM minutes provided a harsh diagnosis of the inflationary environment, and there was no indication regarding the pace and magnitude of interest rate adjustments, which will depend on the evolution of the data. The Committee's description of the current scenario, characterized by resilience...

Much Ado About (Almost) Nothing
BRAZIL ECONOMICS · Report · 23 Sep 2024

The interest rate differential between Brazil and the United States has widened in recent months, a movement that tends to appreciate the real. However, our exchange rate model indicates that this effect is relatively limited, as is the impact of the decline in the Dollar Index caused by the Fed’...

Groundhog Day
BRAZIL ECONOMICS · Report · 19 Sep 2024

The Monetary Policy Committee (Copom) decided to hike the target for the benchmark Selic rate from 10.50% per year to 10.75% per year, in line with expectations from both analysts and market participants. The upward revision of the output gap estimate — thought to be near zero at the last Copo...

In the Heat of the Night
BRAZIL ECONOMICS · Forecast · 16 Sep 2024 · 1 response

Output should grow 3% in 2024, driven by domestic demand, while net imports continue to expand to accommodate the gap relative to GDP. In 2025, activity should slow down to 2%, close to its potential pace. Thus, the labor market will remain tight, with unemployment continuing to decline, while th...

Running Out Of Options
BRAZIL ECONOMICS · Report · 09 Sep 2024 · 1 response

In its last Copom meeting, the Central Bank forecasted inflation at 3.2% in the 12-month period to March 2026, assuming an unchanged policy rate. Since then, economic activity has been stronger than expected, accelerating in the second quarter, while the unemployment rate and capacity utilization...

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