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.

Brazilian financial market bets on the approval of the Social Security Reform in the second-round vote in the Chamber of Deputies; Tax Reform would be next step

However, there is a possibility of weakening in the text of the Social Security Reform, which aims to save around 900 billion reais in 10 years. Now in the second round, MPs cannot include new passages in the text but may remove parts of the text, which could reduce the total saved.

For most analysts, the Brazilian National Congress must now turn its attention to a Tax Reform. Yesterday, the presidents of the Chamber of Deputies and the Senate announced that they will present a single proposal for tax reform.

According to many Brazilian economists, despite this positive movement of the National Congress to work to present reforms with Social Security, there is still no guarantee of the resumption of economic growth.

Now, for analysts, Brazil needs beyond tax reform, improving the business environment, advancing infrastructure projects and promoting the opening of the economy.

Brazilian legislature approves tax reform without the help of Jair Bolsonaro's government

Without the help of the government of President Jair Bolsonaro, the Constitution and Justice Commission of the Chamber (CCJ) of Deputies approved the admissibility of the tax reform. 

The proposal provides for the replacement of five taxes by one, the IBS, within ten years. The objective is to simplify and make more transparent the collection of taxes.

The text, authored by deputy Baleia Rossi (MDB-SP) and the economist Bernard Appy, director of the Center for Fiscal Citizenship (CCIF), goes to the special committee without any help from the government, that now is seen as an impediment to the adoption of reforms.

The Chamber of Deputies, therefore, decided to carry out its own economic agenda without any articulation by the government of Jair Bolsonaro. 

On the day Congress began to vote on a proposal for tax reform, the Federal Revenue Secretary of the current government, Marcos Cintra, declined an invitation to discuss the issue in the Chamber of Deputies. Thus, the only government representative in the area decided would not participate in the debate and approval of the reform made today in the CCJ.

After approval of the text in the CCJ, Cintra said that the government will support tax reform approved today. Cintra's speech was seen as paradoxical.