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COUNTRY INSIGHTS

Despite Deceleration, GDP Will Grow by 2.3% in 2023
BRAZIL ECONOMICS · Report · 14 Aug 2023

After expanding by 1.9% in the first quarter, spurred by the 1.5 percentage point contribution of agriculture, GDP began decelerating in the second quarter. However, the result is better than expected, and reflects not only a still robust labor market, with growth of the occupied population in th...

The Start of the Monetary Easing Cycle
BRAZIL ECONOMICS · Report · 07 Aug 2023

Why did the COPOM decide to cut the SELIC rate by 0.5 percentage point, with five favorable votes against four votes for a decrease of only 0.25 p.p.? An initial interpretation is that the Central Bank yielded to political pressure from the government, which was indeed strong, and hence not only ...

Synthesis of the Brazilian Economy
BRAZIL ECONOMICS · Report · 31 Jul 2023

More favorable international winds along with (preliminary) approval of the fiscal framework and tax reform package, the latter two developments prompting Fitch to raise Brazil’s credit rating to BB, have brought alleviation in the past few weeks. The end of the congressional recess in August por...

Execution Of The “Fiscal Framework”: The First Signs
BRAZIL ECONOMICS · Report · 24 Jul 2023

According to estimates by the National Treasury, to achieve the target of a null primary result in 2024, it will be necessary to obtain additional revenue of R$ 160 billion. The Treasury also estimates that even if this additional revenue is not attained, the gross debt will stabilize at 81% of G...

Global Inflation – A Complement
BRAZIL ECONOMICS · Report · 17 Jul 2023

In our last weekly report, “Global Inflation and Slower Growth: Consequences for Brazil”, we analyzed the reasons (fiscal and monetary) for the resilience of worldwide inflation. The objective of this report is to provide further information regarding the reactions in the monetary and fiscal fiel...

The Good Trade Balance and Current Account Balance Results
BRAZIL ECONOMICS · Report · 17 Jul 2023

Due to another rising cycle of international commodity prices, Brazil’s trade balance has improved significantly since 2020. According to Secex data, in the 12 months through June there was a surplus of US$ 72 billion, with exports of US$ 336 billion and imports worth US$ 263 billion. These expor...

Global Inflation and Slower Growth: Consequences For Brazil
BRAZIL ECONOMICS · Report · 10 Jul 2023

The pandemic was an unprecedented event that triggered a wave of fiscal and monetary stimulus measures, together leading to an outbreak of inflation around the world. The United States and the Euro Zone, which together account for almost 40% of global GDP, established fiscal stimulus actions that...

Synthesis of the Brazilian Economy
BRAZIL ECONOMICS · Report · 03 Jul 2023

The ineligibility of Bolsonaro can soften the current political polarization if the other side of the political spectrum adopts a constructive stance. Much is in play in Congress, which has two weeks to reach decisions on important themes like the fiscal framework, tax reform and CARF rules, amon...

The Copom’s Decision and Definition of the Inflation Target
BRAZIL ECONOMICS · Report · 26 Jun 2023

At its last meeting, the COPOM kept the Selic rate at 13.75%, and besides making it clear that “The current context, characterized by a stage in which the disinflationary process tends to be slower and in an environment of de-anchored inflation expectations continues to require caution and parsim...

Neutral Interest Rate and Fiscal Policy
BRAZIL ECONOMICS · Report · 20 Jun 2023

When all the empirical evidence indicates that inflation expectations are anchored to the target, the Central Bank will begin a monetary easing cycle. Our objective in this report is not to examine when this cycle will start, but rather what the terminal interest rate will likely be. According to...

Behavior of the Yield Curve Reflects Implicit Inflation Rates
BRAZIL ECONOMICS · Report · 12 Jun 2023

In recent days, the nominal rates at the long end of the yield curve (DI curve) have fallen. That movement predominantly reflects the decline of the implicit inflation rates, with a smaller reduction of real interest rates. Before the approval of the fiscal framework, the real interest rates on t...

Synthesis of the Brazilian Economy
BRAZIL ECONOMICS · Report · 06 Jun 2023

The avalanche of failures in the domestic political sphere and in the country’s positions in diplomatic questions requires a rearrangement. The luck of expanding GDP will not last long, and the negative effects of the fiscal-monetary conflict will persist. UNEXPECTED DEFEATS IN THE COUNTRY AND...

Monetary Policy and Fiscal Expansion
BRAZIL ECONOMICS · Report · 30 May 2023

Asked by an interviewer about the reasons for the Central Bank’s “stubbornness” in keeping the interest rate high, Campos Neto responded that a real interest rate for 10 years of around 6% a year has nothing to do with monetary policy, and is instead the fault of fiscal policy. Unfortunately, due...

Effects of the Fiscal-Monetary Conflict
BRAZIL ECONOMICS · Report · 22 May 2023

Whether measured by the one-year ex-ante real interest rate or by our financial conditions index, monetary policy is more restrictive than during the recession of 2014-16. Nevertheless, the economic activity data for the first quarter of 2023 show that the economy, at least until then, was recove...

The Path to Fiscal Dominance
BRAZIL ECONOMICS · Report · 15 May 2023

In an article published in 1981, Sargent and Wallace described the evolution of a non-cooperative game between a fiscal authority and a politically independent monetary authority. If the fiscal authority expands spending, leading to unsustainable growth of the public debt, the monetary authority ...

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