Brazil Memo 1406 - A Crisis of Confidence

Brazil Memo 1406 - A Crisis of Confidence

Chamber Member News Post Date: 07/22/13 Source: Projeta Consultoria By: Carlos Geraldo Langoni
Summary

 A political component in the current Brazilian scenario has contributed to the sharp decline in business confidence. Popular demonstrations have leveraged the dissatisfaction with the course of
the economy.

The market continues to believe in low growth and high inflation. GDP has been cut to just 2%. The interest rate increase managed to interrupt the steep rise of inflation.

Although fiscal policy remains the more complex problem, it is essential to reinforce economic fundamentals such as inflation targeting and the floating exchange regime.

The announcement of the end of the monetary loosening in the US, together with domestic uncertainties, is responsible for the dollar appreciation.

It becomes increasingly evident that the economic debate will dominate next year’s electoral campaign.

The fragile current economic scenario has given a new momentum to the opposition, which has yet to come up with ideas that will meet the demands of and motivate the new middle class.

The business confidence index’s sharp decline, as estimated by the National Confederation of Industry (CNI), is one more objective indication that expectations are deteriorating.

It has worsened in reference to both the present and the future business environments.

· Expectations:

The leading economic indicator (calculated by the Getulio Vargas Foundation – FGV – and the Conference Board) dropped in June, confirming a climate of uncertainty and hardship, which affects sustainable growth.

Popular demonstrations have leveraged dissatisfaction with the course of the economy and introduced a political component, so far minimized, into the perception of the Brazil risk.

In view of this political component, speeding up the slow upturn economic activity through the recovery of investments will be even more difficult. Therefore, Brazil will continue to depend on consumption, which also shows signs of slowing down.

Household consumption intent (ICF) fell in June, reflecting the high level of indebtedness and less optimism relative to employment and income. Read Full Article