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.

BNDES announces a profit of R$ 11.1 billion in the first quarter of 2019

The Brazilian National Economic and Social Development Bank (BNDES) recorded a profit of R$ 11.1 billion in the first quarter of 2019. The result represents an increase of 436.7% compared to the same period of 2018 when profit was R$ 2.1 billion.

Joaquim Levy, the president of BNDES, announced that the state bank will return to the National Treasury R$ 48 billion still in May 2019. This value refers to a part of a loan taken by the bank between 2008 and 2014.

Iedi points to Brazilian GDP growth below 1% in 2019

The Institute for Studies in Industrial Development (Iedi) of Brazil has published an expectation that the Brazilian Gross Domestic Product (GDP) should grow less than 1% in 2019. The industry should perform even worse, with retraction around 2% in 2019.

According to the Iedi Executive Director, Julio Gomes de Almeida, "there is no factor to change" this conjuncture in the short term. For him, the high level of unemployment in the country prevents a stronger growth of economic activity.

Almeida says that even if the Brazilian Central Bank (BC) reduces the Selic rate, which is currently at 6.5% per year, these measures would only show some result in 2020. This, coupled with the low competitiveness of Brazilian industry, our low levels of productivity and the crisis that currently affects Argentina, Brazil's main trading partner in the region, makes the scenario even more worrying.

In the comparison of the first quarter of 2019 with the same period in 2018, the four segments of manufacturing Brazilian industry fell: capital goods industry (-4.3%), durables industry (-3.5%), intermediate processing industry (-2%), and semi-durable industry (-1.4%). The decline of the general industry in Brazil, in turn, was 2.3%.

To make matters worse, the construction sector cut 12,648 jobs in March in Brazil.

Ibovespa falls more than 2%

The main index of the São Paulo Stock Exchange, the Ibovespa, had a very negative result today, May 13, 2019. This was the announcement of retaliation from China to the US surcharge, which began at dawn last Friday.

This dispute between China and the US coupled with the fact that financial market analysts have reduced for the 11th consecutive time their projections for growth of the Brazilian economy in 2019. According to the Focus Bulletin report released on Monday (13) by the Central Bank (BC), the economy is expected to grow only 1.45% in 2019. However, there are analysts indicating that this growth should be around 1%.

This is, for example, the projection for the Gross Domestic Product (GDP) made by Itaú, one of the largest private banks in Brazil. For Itaú, Brazil is expected to grow only 1% in 2019. Itaú also reduced next year's growth forecast from 2.5% to 2%.

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.

Disapproval of the Bolsonaro government rises from 20% to 31%

Ipespe Research commissioned by XP Investimentos indicates that the disapproval of the current Brazilian government rose from 20% in January 2019 to 31% in May 2019.

In the same period, according to the same survey, government approval fell from 40% to 35%.

The current government operates under a dynamic of constant conflict, permanently creating enemies, even inside the government itself, and presenting few exits to the economic crisis in which the country finds itself.

The frustration of many voters is directly linked to the feeling that the current president is on a permanent election campaign. As macroeconomic indices such as unemployment, inflation, and industry performance present an increasingly difficult picture, voters want solutions and no longer debates on moral issues.

If the current government does not offer some sort of solution to the crisis affecting the country, the trend is the economic scenario that is bad enough to worsen further. This, in turn, will further weaken the current government.

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.

Brazil: inflation higher than expected by the government

Inflation in Brazil continues to rise, reaching 4.94% per year and getting distance from the center of the official target for 2019, which is 4.25%.

According to the IBGE, the Broad National Consumer Price Index (IPCA), considered the country's official inflation, stood at 0.57% in April 2019. This is the highest rate for a month in April since 2016 when the index was 0.61%.

When it reached 4.94%, the accumulated in 12 months exceeded the central inflation target of 4.25% set by the National Monetary Council (CMN).

The rise in the price of medicines was one of the main reasons for the growth of inflation in Brazil. The upward trend in inflation in Brazil is expected to continue higher due to the 3.43% increase in the price of the gas cylinder, authorized by Petrobras and in effect since 5 of May, and also by the increase in the price of energy consumption.

Brazilian teachers announce general strike for May 15

Although the Social Security Reform begins to move in the National Congress, the policy of cuts in education spending adopted by the government of Jair Bolsonaro may take to the streets students who have overthrown the Dilma and Collor government.

The 2013 demonstrations that would eventually lead to the downfall of the Dilma government began with students protesting against a 20-cent increase in public transportation fares.

Now, with the policy of drastic cuts in the budget of the federal universities of the current government, everything indicates that the student movement can return to the streets. The first test will be on May 15 when teachers will make a general strike. If the movement gets the students' support, the Brazilian social situation may become even more chaotic.

Added to this scenario, the macroeconomic data for 2019 are very negative. There are analysts already indicating that the country may be heading into a new recession. Unemployment growth can also help to amplify the level of dissatisfaction in Brazilian society.

Justice orders former President of Brazil Michel Temer to return to prison

The Brazilian Justice today decided by two votes to one, that former President Michel Temer and Colonel João Baptista Lima Filho return to prison. The decision to revoke habeas corpus was judged by three judges of the Federal Regional Court of the 2nd Region. By 2 votes to 1, the court revoked the habeas corpus granted to Temer and João Baptista.

Temer had previously been arrested on March 21, 2019. He is accused of leading a criminal organization that received R$ 1 million corruption money over the construction contract for the Angra 3 nuclear power plant.

The former Brazilian president also responds for crimes of corruption, embezzlement and money laundering in the Lava Jato lawsuit that runs in Rio de Janeiro under the command of Judge Marcelo Bretas

São Paulo and Pará pull down Brazilian industry in March, according to IBGE

The drop of 11.3% in industrial production in Pará and 1.3% in the industry of São Paulo in March 2019 were the main influences for the result of -1.3% of the national industry. This is what the Regional Monthly Industrial Survey, published today by IBGE, shows.

Iron ore represents more than 80% of the industry of Pará, any oscillation in this sector affects drastically the industrial activity of that Brazilian state.

In São Paulo, the motor vehicle industry was the one that had the biggest reduction in its production. Part of this happened due to the rains of March that flooded the courtyards of the companies located in the region of the ABC of São Paulo, hindering the production. Another factor is the country's poor economic performance, which harms sales of cars.

As in Argentina, the Brazilian automotive industry is one of the most affected by the economic crisis affecting the region.