A possible global recession could produce the perfect storm for Brazil's already weak economy

Brazil's economy is suffering from very poor performance, with GDP growth for 2019 expected to be around 0.83%. However, due to the emergence of a possible risk of a global recession coupled with a change in Argentina's political landscape (moving from a neoliberal government, Mauricio Macri, to a more developmental government, Alberto Fernández).

With the global economy slowing down, Brazil must face even greater difficulties to get out of the scenario of extremely high unemployment (over 12 million unemployed people) and very little economic growth.

Even with the Pension Reform and the Tax Reform walking the Brazilian National Congress, which decided to act almost independently of the executive power, which through the often absurd speeches of President Jair Bolsonaro greatly harms any political coalition, the country will face economic difficulties to get out of the crisis scenario in which it finds itself.

In recent days, the outflow of foreign capital from the São Paulo Stock Exchange is higher since the one recorded in the global crisis of 2008. According to the website Terra, until the 15th of August 2019 (most recent data), the volume was negative in R$ 19.1 billion. In 2008, the red balance recorded in the year to the end of August was R$ 16.5 billion.

A direct consequence of the search for global security, this outflow of resources from the country will further weaken the Brazilian economy. To make matters worse, studies released this week indicate the collapse of investments in Brazil. Capital used to expand production in the country fell to the lowest level in 70 years in some sectors.

The financial market in Brazil celebrates the approval of runoff of Pension Reform by the House of Representatives; Copom report presented by the Brazilian Central Bank's points toward the perspective for new cuts in the basic economy rates, the Selic

After a vote of 370 votes in favor and 124 against, the Brazilian Chamber of Deputies approved the Social Security Reform. Highlights will now be voted on, which may change some points of the approved text.

According to the website Poder360, The Central Bank announced through the report of the last Copom (Monetary Policy Committee) meeting that the basic interest rate may fall again in the coming months. At the committee's last meeting, interest rates fell from 6,5 to 6 percent a year. This is the lowest rate in the historical series.

According to a study by economist Affonso Celso Pastore, the Brazilian economy will take a long time to improve. Latest indicators worry and point to impending economic recession. To make matters worse, weak data on Brazilian industry, trade, and services, the main drivers of the country's growth, point to a fall in Gross Domestic Product in the second quarter of 2019.

Therefore, even with the prospect of interest rate cuts by Copom, the tendency is for the Brazilian economy to continue at a very weak pace.

Brazilian financial market raises GDP projection to 2019 for the first time in 20 weeks

The Focus report, published by the Brazilian Central Bank every Monday, indicates that projections by Brazilian financial market analysts estimate GDP growth to be 0.81% to 0.82% by 2019. The same analysts consulted by the Brazilian Central Bank continue betting on the growth of 2.10% of the Brazilian GDP in 2020.

The change is related to the approval of the first shift of the Pension Reform by the Chamber of Deputies of Brazil. Even so, the performance of the Brazilian economy is still very poor. Many analysts expect the government to present some kind of measure that could warm the Brazilian economy a bit more.

Economists lowered the estimate for the Brazilian official inflation index (IPCA), which was down to 3.78%. A week ago it was at 3.82%. This year's central target is 4.25%, with a tolerance of 1.5 percentage points to more or less.

Many analysts believe that the Central Bank should, at the next Monetary Policy Committee meeting (Copom), which takes place in the last two days of July 2019, should lower the Selic rate of the Brazilian economy that is now at 6, 5% per annum.

The financial market in Brazil warms up after first approval of Social Security Reform

For many analysts, medium and long-term capital must begin to reach the Brazilian economy should the approval of the Pension Reform continue and be approved by the National Congress.

If approval occurs, for analysts, Brazil should grow again in 2020. According to the head of the Economic Policy Secretariat (SPE) of the Ministry of Economy, Adolfo Sachsida, if the reforms are approved, the government will propose a productivity agenda. Sachsida believes that this could make the economy grow again at a faster pace, from 3% to 4% a year, in the long run.

Despite the government's goodwill, very weak data from industry, commerce, and services in Brazil, the main engines of economic growth in the country, point to a fall in Gross Domestic Product in the second quarter of 2019. This means that Brazil can return to a recessionary scenario later this year.

According to Valor Econômico newspaper, real economic data indicate that Brazil "has not been able to recover from the recession, it has 13.3 million unemployed, of whom one in four has been seeking jobs for more than two years. % of installed capacity is idle, 210 thousand commercial companies closed their doors in four years and 6 thousand companies demanded judicial reorganization. The negative effects of the 2014-2016 depression on the Brazilian economy were stronger and went on much longer than expected".

The financial market in Brazil is negatively impacted by the political disagreements of the current government

The political swoops between President Jair Bolsonaro and his ministers with the National Congress are worrying Brazilian investors. The Social Security Reform has been going a long way because of the efforts of the mayor of the Chamber of Deputies, Rodrigo Maia. However, Maia and other deputies involved in the Reformation continue to have disagreements with the government of Jair Bolsonaro. Most of these disagreements arise because of the complete lack of political ability of the federal government.

According to the Folha de S.Paulo newspaper, this political disarticulation added to the "pressure of parties and the lobby of public servants impinges" the Pension Reform.

Voting for Pension Reform postponed in Brazil; according to Ibope, Bolsonaro's popularity falls

The rapporteur for the pension reform bill, deputy Samuel Moreira, said that despite the postponement of the special committee session in the House, he believes that the Pension Reform proposal will be voted by the Chamber of Deputies before the July recess.

But with each passing day, it becomes more difficult for the vote to take place. Today, for example, Members decided to postpone the reading of the rapporteur's supplementary vote, which was scheduled for today (27.jun.2019).

The Pension Reform is struggling because of the inability of the government of President Jair Bolsonaro to participate actively and positively in political negotiations. The president of the Chamber of Deputies, Rodrigo Maia, has been the main responsible for the progress of the Pension Reform.

An example of this difficulty is the position of MP Marcelo Ramos (PL-AM), who is chair of the special committee for the Pension Reform, which reacted very poorly to the knowledge that the Minister of Economy, Paulo Guedes, said that the Congress is " a machine of corruption. " Ramos said he "has no respect" for Guedes anymore.

Ramos also said that "the government does not have an agenda, and because it has no agenda, it needs to adopt a diversionary attitude, it has no agenda to face the country's structural problem, which is 12.7 million unemployed, GDP below 1%. the way is a diversion, talk of three-pronged, gun-carrying, things that draw attention to the economic disaster that is the first six months of the Bolsonaro administration."

To make matters worse, new research indicates the popularity of Jair Bolsonaro. According to the Ibope, the rate of disapproval of the way the president governs rose from 40% to 48%. In April, 51% approved the management. Now the percentage fell to 46%.

In less than six months of government, the percentage of those assessing the government as bad has risen from 27 percent to 32 percent in June, and the population evaluating the government as good dropped from 35 percent to 32 percent. Therefore, the current government has growing disapproval.

Brazilian financial market fears possible delay in voting on Pension Reform

The Brazilian financial market remains apprehensive to know if it will happen today, 27.Jun.2019, the reading of the Pension Reform report. The delay for the national political framework to discuss, vote and possibly approve the Pension Reform leaves investors in Brazil very apprehensive. Everyone already believes that the year 2019 is lost.

As the inflation framework in Brazil is not worrisome, due to the weakness of the Brazilian economy, everything indicates that in the second half the Brazilian Central Bank will cut the basic interest rates, which are currently at 6.5% per year.

The fear of some federal deputies losing the vote of the Pension Reform, since many are celebrating the feasts of São João in their respective states, can delay the entry of the Brazilian states into the new Social Security. This impasse is delaying the reading of the complementary vote of the rapporteur and federal deputy, Samuel Moreira. 

According to UOL website, "the inclusion of states and municipalities in Pension Reform is necessary because they are also breaking down. The deficit in the states reaches R$ 100 billion today and can quadruple until 2060. However, this inclusion has not yet been made basically because governors and federal deputies are afraid to displease state officials and lose votes."

B3: Ibovespa sets a new record and reaches 102 thousand points

The Ibovespa traded today in a high and hit a new record, above the 102 thousand points. In the week, the main stock index of the Brazilian financial market accumulated a gain of 4.05%, the highest increase since the last week of December 2018.

The optimism of Brazilian investors is a direct result of the growing possibility of interest cuts in the United States and the increase in the voting chance of the Pension Reform in Brazil.

The Broadcast website today reported a report in which the analyst at Terra Investimentos Régis Chinchila said that the signaling that central banks in the US and other parts of the developed world can reduce interest rates is positive for Brazil.

According to the Minister of Economy of Brazil, Paulo Guedes, the report of the Pension Reform made by the deputy Samuel Moreira (PSDB-SP) "aborted the new Social Security"

The Minister of Economy, Paulo Guedes, said today (14.jun.2019) that the opinion presented yesterday (13.jun.2019) by the PEC rapporteur (Proposed Amendment to the Constitution) of Social Security in the Special Committee, Mr. Samuel Moreira ( PSDB-SP), will force Brazil to make a new Reform in 5 or 6 years.

According to Guedes, if Congress "approves the reform of the rapporteur, which is an R$ 860 billion cut, have aborted the new Social Security. They will show [congressmen] that there is no commitment to future generations."

For Guedes, they were "privileged" public servants who pressed for cuts in the Social Security Reform and for maintaining their privileges.

Paulo Guedes's criticisms of the report presented by Rep. Samuel Moreira led the dollar to close 1.15% in Brazil, quoted at R$ 3.89991, after hitting a maximum of R$ 3.9136. The rise came shortly after Guedes criticized the Social Security report.

Rodrigo Maia, the president of the Brazilian Chamber of Deputies, denies that he has made a political agreement with President Jair Bolsonaro

In an interview with the newspaper O Globo, Rodrigo Maia, the president of the Chamber of Deputies of Brazil, denies that he has made a political agreement with President Jair Bolsonaro. 

According to Maia, no pact was signed. Just a conversation. The president of the Chamber of Deputies also said that the current government does not have a formulated agenda. Meanwhile, Brazil would be headed for "social collapse".

Today, the deputy that is writing the report for the Pension Reform, Samuel Moreira (PSDB-SP), said that he seeks alongside Rodrigo Maia, "build a majority before submitting the report." Moreira said he should present his text until next Thursday.

To make matters worse, in the difficult economic scenario, Brazil suspended today meat exports to China after an isolated case of "mad cow". The suspension of trade, according to the Ministry of Agriculture, is provided for in the bilateral protocol signed by the two countries in 2015. Also according to the Ministry of Agriculture, the suspension is temporary until the Asian country completes the evaluation on health information already transmitted by Brazil about the episode.

The dollar value continues to grow in Brazil and end the day at R$ 4.0360

The trading session of the São Paulo Stock Exchange (Bovespa) closed with the dollar rising 0.47%, quoted at R$ 4.0360. In the previous trading session, on May 24, the currency was quoted at R$ 4.0170.

The support of thousands of protesters in various Brazilian cities in favor of Pension Reform and Jair Bolsonaro's government helped to optimize the Brazilian financial market. However, the demonstrations that took place on Sunday, May 26, were smaller than the demonstrations against the cuts made by the current government in the area of education, which occurred on May 15.

Among protesters who took to the streets to defend the government, there were criticisms against the Congress, the political establishment, and specially directed to the president of the Brazilian Chamber of Deputies, Rodrigo Maia (DEM-RJ).

The US political risk consultancy Eurasia evaluates that the actions in defense of Jair Bolsonaro can be positive for the advance of the Pension Reform.

Many analysts believe that this sequence of major anti-government and pro-government demonstrations points to a major political division in the country, which could become more acute if demonstrations continue to grow. The next demonstration against the government is scheduled for May 30.

The B3, the main indicator of the Bovespa, falls after Brazilian Economy Minister Paulo Guedes threatens to resign

Today, May 24, 2019, the Bovespa Index had its third consecutive day of low. B3's main share index rose more than 1% in the morning, but lost its force in the afternoon and closed 0.30% lower at 93,627.80 points.

This fall occurred after VEJA magazine published an exclusive interview in which the Economy Minister, Paulo Guedes, said he would resign if reform proposal becomes just a "little Pension Reform".

In the week, however, the Brazilian stock market was up 4.04%.

The dollar, on the other hand, closed today at R$ 4.0152, the lowest price in 10 days. The Brazilian Real was the emerging currency that strengthened the most on Friday in relation to the US currency.

Investments in Brazilian states plummet

According to Valor Econômico newspaper, state investments fell 64% compared to 4 years ago. According to fiscal reports of 23 federal units, investments fell from R$ 2.65 billion in the first two months of 2015 to R$ 934.8 million in the same period of 2019.

In the case of Rio de Janeiro, for example, investments totaled R$ 6.7 billion in 2015 for an expected investment of around R$ 300 million in 2019. This is a very evident example of the terrible economic situation of many Brazilian states. This degree of deterioration in state investments results from the high level of financial imbalance of the state accounts in the last five years.

The projections of economic growth, due to a crisis scenario very similar to last year, point down. Linking investments and business confidence to the approval of the Pension Reform can be a serious misconception since only the Pension Reform is not able to solve all the problems of the country.

There is an undeniable need for the federal government to present some short-term measures to try to minimize the crisis that affects the Brazilian economy.

Companies of Brazilian deputies and senators owe R$ 320 million to Social Security

The website Poder360 indicated that 48 politicians fulfilling the mandate of federal deputy and senator in the Brazilian National Congress are owners, partners or presidents of companies that add up to R$ 320 million of social security debts with the Union.

This means that at least 48 votes for a possible Pension Reform will be given by individuals whose companies have debts with the National Social Security Institute (INSS).

Meanwhile, a group of businessmen who support the Social Security Reform opens a lobby office in Brasilia to try to avoid that the reform, considered vital for the resumption of the growth of the Brazilian economy, is barred in the National Congress.

This group includes Flávio Rocha, owner of Riachuelo, who according to Valor Econômico newspaper has already criticized Brazilian rules for labor inspection in a condition analogous to slavery, and Luciano Hang, owner of Havan, which was, according to El País, convicted of INSS's evasion and the crime of currency evasion and money laundering.

Brazil cuts 43,196 jobs at the formal labor market in March

According to information from the Caged (General Register of Employees and Unemployed) disclosed today by the Special Secretariat of Social Security and Labor of the Ministry of Economy, Brazil closed 43,196 job vacancies with a formal contract in March. This is the worst result for the month of March since 2017 when 63,624 jobs were closed. In March 2018, Brazil had created 56,151 jobs with a formal contract. The worst results were registered in the areas of commerce (-28.803), agriculture (-9.545), and construction (-7.781).

Today, after the vote on the Pension Reform in the Constitution and Justice Commission (CCJ) of the Chamber of Deputies, approved yesterday after 62 days of debates, six times more time for the approval of the Pension Reform project presented previously by the government of Michel Temer (which was not approved).

This difference to overcome a stage that virtually all analysts consider very simple indicate that perhaps the government, because of its disorganization in political articulation, will have difficulties approving the Pension Reform.

The union of the negative numbers of Caged and the difficulty of the government to approve the Pension Reform does not create a favorable horizon. Because of this climate of doubt and uncertainty, the financial market in Brazil will continue to fluctuate.

Brazil walks to another lost year

The uncertainties and increasing risks related to Jair Bolsonaro's government's ability to send reforms to the National Congress and to implement its economic policy undermine confidence and undermine investments in Brazil.

The very weak picture of the Brazilian labor market indicates that companies have no intention of producing more or investing. The high levels of unemployment and the low quality of jobs offered reflect an almost stagnant environment. This hinders the acceleration of consumption, which will lead the country to another year of growth of around 1%.

According to the World Bank, 14 million Brazilians are at risk of returning to poverty. One of the main problems is that the Brazilian labor market is not absorbing the young. These unemployed young people are not served by any social program and also do not have access to unemployment insurance, as most are looking for their first job.

Meanwhile, the Brazilian government has been held hostage by the Pension Reform, so far its only subject and only measure in the macroeconomic area. Moreover, the government's actions are aimed at small microeconomic changes, which are not enough to change the almost stagnant picture of the Brazilian economy.

Most Brazilians are against the Pension Reform proposed by Bolsonaro's government

A survey conducted by the Datafolha Institute indicates that 51% of Brazilians are against pension reform proposed by the government of Jair Bolsonaro. The survey was conducted by Datafolha between April 2 and 3.

For most Brazilian economists, the Pension Reform is urgent and must be done. However, the population fears that the poorer classes will again be the most disadvantaged. The population knows that the Pension and Social Security systems yield deficits are caused by the enormous privileges of politicians, some public servants (judges, prosecutors, and procurators) and the military, who receive very high pensions by Brazilian standards.

President Jair Bolsonaro, for example, started receiving, at the age of 33, retirement as retired captain of the Brazilian Army. Bolsonaro, who is now 64 years old, has been receiving the retirement of Exércio for more than 30 years (according to data from the Brazilian Army, the salary of captain in 2018 was R $ 8,517.00). In January 2019, Bolsonaro became eligible to retire also by the former Congressional Pensioners Institute (IPC), being able to receive from the Chamber a further R$ 29,301.45 per month. Meanwhile, an urban worker from the private sector (who retires by the age criterion: 65 for men and 60 for women) receives monthly R$ 1,129.31, which corresponds to about 290 dollars. In Brazil, the average retirement of a federal deputy is 23 times higher than that of ordinary workers.

There are even more absurd cases like those of military daughters who receive pensions practically throughout their entire lives. Only these cases cost Brazilian public coffers about R$ 5 billion per year. Most of these 110,000 women are fit to work. Some work in private companies and thus have two sources of income. However, the military daughters enjoy a lifetime pension inherited from their father, even though they have a job. Many of them marry but do not officialize the marriage so as not to lose the pension. These "single" women receive on an average monthly payment of about 6,000 reais in a country where two-thirds of the Brazilian workers retire with six times less.

Since 2000 it is no longer possible for the military to bequeath the benefit to their unmarried daughters. Even with this extinct benefit, however, Brazil will continue to disburse around 5 billion reais per year until 2060 for the daughters of the military who already receive this pension.

Therefore, besides being an economically unsustainable social security system, generating innumerable and grotesque inequalities, there is enormous difficulty and even lack of will to combat these inequalities. Mainly because the political class, responsible for Pension Reform, is one of the most benefited by the current framework. As a result, it becomes very difficult to believe that politicians will produce reform that promotes social justice and reduces current disparities.

Articulation of the Brazilian government will determine the behavior of the Brazilian financial market in the coming days

The first three months of the government still produces some optimism among some agents of the Brazilian financial market.

The lull in the international financial market, with Central Banks acting and China and US relation showing a more positive picture, helps maintain a certain optimism among Brazilian investors.

The Brazilian government began to move more to approve the Pension Reform. However, the government has not yet been able to consolidate an allied base for approval of its projects.

It all depends on the Brazilian government's ability to do politics. However, it appears that there is no such bargaining power in government.

There is also the danger that Bolsonaro or his sons may again publicly quarrel with some important political actor, as happened weeks ago the quarrel between the President of the Republic, Jair Bolsonaro, and the president of the Brazilian National Congress, Rodrigo Maia.

Speech of Brazilian Economy Minister in Congress overturns Stock Market

The Ibovespa, the main index of the Brazilian Stock Exchange, ended the day falling 0.94%, to 94,491.48 points. This is the lowest level in a week.

This change in the behavior of the Financial Market was a fruit of the defense of the Pension Reform, in the Chamber of Deputies, made by the Minister of Economy, Paulo Guedes.

The minister, who had already discussed harshly with Senator Kátia Abreu during his defense of the Pension Reform in the Brazilian Senate last week, was again criticized by the opposition for not presenting figures and studies to defend the Pension Reform today.

Due to this performance and the uncertainties that it generated, the dollar returned to increase by 0.54% and closed the day with the quotation of R$ 3.8790.