The main problems of the Brazilian economy today

Brazilian investors and the financial market earlier this year were very optimistic with the new government of Jair Bolsonaro. However, over the months that follow, the new Brazilian government has shown signs of not being as liberal as it had promised during the campaign, that the promised Pension Reform faces difficulties to be approved in the National Congress and the macroeconomic scenario is increasingly getting worse.

The huge loss of confidence led the Brazilian economy to continuous reductions in growth forecasts, with a possible slowdown in growth in the first three months of 2019. The second quarter of 2019 also indicates a stagnation. As a result, the country risks falling into recession in 2019.

This picture of large idle capacity within companies and very slow-paced economy should bring down inflation, but that is not what happened. Due to the increase in food prices, the country saw inflation grow and the picture became even more worrying. The slow economic recovery, after the recession that occurred in the governments of Dilma Rousseff and Michel Temer, with rising inflation increases instability.

The truth is that the Brazilian Financial Markets (analysts and economists) and the Brazilian businessmen bet very high on a government that was not able to respond to the height to that bet.

As the country's GDP does not grow, the collection capacity of the Brazilian government has decreased. Because of this, the government will be forced to make cuts in the budget, which follows the projection of GDP. The government is expected to cut about R$ 40 billion in public spending by 2019. To make matters worse, the government will need an additional bill to close the accounts of about R$ 248 billion. By the end of the year, the government will have to negotiate with Congress to approve this amount to close the accounts. However, the political negotiations for the approval of this additional have not even begun.

In order to gain productivity and to compete better with other nations, the current government should be facing structural issues such as Pension Reform, tax reform and also new rules and better management of the public machine. But what we see is a government that is incapable of leading Congress in that direction. The lack of political articulation of the current government prevents these structural reforms from becoming a reality.

Brazil: a desert of economic ideas

The current Brazilian economic scenario is catastrophic after years of low economic growth, fiscal uncontrol, and high unemployment rates. The whole contingency of the government that now hits hard federal universities and is sold by the government as a measure to try to cover the gap in the economy conceals, in fact, the lack of economic proposals of the current government for Brazil to leave the crisis frame in which is found.

The government uses the approval of the Pension Reform as the great measure capable of making Brazil grow again. The previous government, of president Michel Temer (who is back to jail in corruption probe), sold the labor reform in the same way. The then Minister of the Economy Henrique Meirelles went so far as to say that the reform would produce 6 million new jobs, but what actually occurred was the rise in unemployment.

Weak macroeconomic data are the result of the lack of proposals by the current government and the orthodox reforms adopted since the arrival of Joaquim Levy to the Brazilian Ministry of Economy during the second Dilma government in late 2014. Levy, now president of the BNDES, initiated a series of orthodox economic measures. Since there should be no Bolsonaro government spending increasing demand and Brazilian entrepreneurs do not seem willing to bet on the Brazilian economy, in the medium term the Brazilian economy should remain weak.

All indications are that in the coming months' recessive adjustments will continue amid the scrapping of Brazil's physical and social infrastructure.