Brazil Economic Perspective
The definition of the presidential elections in Brazil is expected for the end of October 2022, and the local financial market seems quite confident about the re-election of the current right-wing president, Jair Bolsonaro, who managed to elect a large majority in the senate and congress in the first round of elections on October 2nd.
According to the latest PwC Brazil report, released in early October, 807 M&A transactions were completed in the first half of 2022, a new record in Brazil. This trend is expected to extend into the second half of this year. In the same period of 2021, 706 deals were closed, in a record year with 1,659 deals.
Brazil experience in fighting inflation is extensive, and therefore, in this world actual context, we have better numbers than the United States and Europe.
According to the Fed minutes released on 9/21/2022, US growth was revised downwards this and next year, and interest rates there should remain at a higher level for longer. Europe seems even further behind in its monetary policy tightening cycle.
Despite the interruption of the cycle of heightening the interest rates in Brazil, we believe that our interest rate may remain at this level longer than the local market seems to price it.
Brazilian economy is doing well, thank you. Commodities on the rise, Agribusiness strengthened, inflation retreating with the help of temporary tax cuts and anchored expectations, interest rates at a relatively high level, sure, but with apparently appropriate timing and a bearish bias in the medium term. Economic activity shows signs of improvement, unemployment rates falling, debt/GDP ratio improving and a trade surplus this year.
Even with all the measures adopted in the last 2 and a half years, Brazil’s V-shaped economy recovery is surprising. The distribution of emergency aid was gigantic, it helped and continues to help the most vulnerable, especially those who were prohibited from working. On the other hand, the emergency aid imposes a high price on society, due to the fiscal cost and inflation impact. The level of indebtedness of households and companies, as a result of the aforementioned measures, is also a cause for concern.
Brazil has a lot to do as a country, such as political, tax and labor reforms, but notably in improving education, so that it can produce more and better. The country faces the challenge of leveraging investments and fostering competition in its markets, creating, and attracting more foreign direct investments and companies for all sectors of the economy.
Daniel Rivera
Elit Capital
Founding Partner