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.
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.
