Economic detachment from political tensions may have ended
Economic indicators that had remained detached from the high degree of political volatility of the last two years in Brazil have finally worsened with the real slumping, GDP growth forecasts declining, and unemployment growing.
Prospects for this week are less than brilliant. Investors were confounded by the Central Bank’s totally unexpected decision to hold its benchmark Selic interest rate at 6.5% in reaction to a stronger dollar and a surge in US bond yields.
The decision stirred a run by investors to adjust their short-term bets. The day of the announcement found Brazilian markets the most nervous they had been since exactly one year ago, when tapes allegedly involving President Temer in a graft scheme were leaked to the public.
The stock market has reacted with pessimism towards the near future with most analysts predicting declines in this week’s Ibovespa index.
The same applies to the currency market. The real has slumped to its lowest price against the dollar in more than two years and despite Central Bank promises to interfere this Monday to contain the dollar’s rise, with US$ 750 million in swap auctions, there is widespread skepticism about its efficacy.
Behind the dark mood are the latest public opinion polls related to the October presidential elections. They show centrist candidates, particularly the markets’ favorite (former São Paulo Governor Geraldo Alckmin) performing poorly and left-wing and right-wing contenders gaining some ground.
It is possible that the uncertainties with regard to the elections will continue to keep the economic environment shaky, although the consensus is that up to now, there is no reason to panic regarding the short and medium-term.
However, if some new and as of now unpredictable domestic or international event occurs, all could change. For instance, despite the fact that almost everyone agrees that Brazil’s conditions are much better than Argentina’s, currency volatility in the neighboring country has affected Brazil, although not significantly.
The views and opinions expressed in The Pulse are PATRI’s own and do not necessarily reflect the views and opinions of the Brazil-U.S. Business Council. For additional information please email Carlos Eduardo Lins da Silva, at email@example.com.More Testimonials