News and updated economic data on Brazil, to make better investment decisions

by Mauro Mantica, Foreign Direct Investment

Updated economic indicators – 2022, July 7


In the meeting of the Monetary Policy Committee (COPOM), which ended on June 15, 2022, Banco Central increased the discount rate (SELIC) by 0.5%, bringing it to 13.25%. The intervention of Banco Central therefore continues to try to contain the inflation rate, still above 10% per annum. In the minutes of the meeting, published on 21 June, Banco Central confirmed that a gradual reduction in rates is expected only in 2023, inflation permitting.

On June 30, the Senate approved a Proposal for an Amendment to the Constitution (PEC) which collects a set of measures to increase the value of social programs and to combat the increase in fuel and gas. The value of the maneuver is estimated at around 41 billion reais and will not fall within the annual spending ceiling that the government is obliged to respect. The PEC provides for the granting of a subsidy for truck drivers (R $ 1000 per month), the increase of the gas voucher for families, the increase of Auxilio Brasil (subsidy for low-income families) from R $ 400 at R $ 600 per month and a subsidy for taxi drivers (R $ 200 per month).

The text now goes to the Chamber of Deputies, where it should have no problems with approval.

The unemployment rate is still decreasing, from 10.5% in April to 9.8% in May 2022. It is the lowest level since 2016 and confirms the growth trend of the economy, even if generated above all by the more informal sectors . The average income, in fact, fell by 7.2% in one year: more employed, but with lower wages on average.

Inflation is still very high, around 12% in the last 12 months. According to a survey released in mid-June, the number of people suffering from hunger in Brazil is about 33 million (at the end of 2020 it was 19 million). It is evident that inflation is strongly affecting the purchasing power of the poorest sections of the population and this remains the great problem to be addressed.

Banco Central forecasts for 2022, for the first time in 15 years, a surplus in current transactions. A surplus of only 4 billion dollars, which however strengthens the exposure of the Brazilian economy to the world since it represents the flow of foreign money from exchanges in goods, services and rents (excluding capital transfers). Again according to Banco Central estimates, in 2022 the trade balance should be positive for approximately 86 billion dollars (+ 139% compared to 2021). In spite of the international crisis, foreign direct investments are also growing, which should go from 46 billion dollars in 2021 to 55 billion dollars in 2022. If we also consider that Brazil’s international reserves amount to 353 billion dollars and that interest rates are among the highest in the world, there is a good chance of a further appreciation of the real in the next six months.

Renault has announced an investment of 2 billion reais (approximately US$ 382 million) in the Sao José dos Pinhais factory, located in the state of Parana ‘. The investment will go to the creation of a production line for a new SUV and the development of a new turbo engine. Nissan also announced an investment of 1.3 billion reais in its Resende (RJ) plant.

The fifth generation of mobile Internet (5G) will start operating in Brasilia on Wednesday 6 July 2022. The Brazilian capital will be the first city-country to take advantage of the new communication technology; the next city will be Belo Horizonte.

Due to a strike by Banco Central officials, no data relating to the Focus research was released this month. For this reason, the update of the tables of GDP, inflation, interest rate and exchange rate is not available.

Real / dollar exchange

The dollar is quoted today (7 July 2022) at R $ 5.41, strongly appreciating compared to a month ago (4.80). The sharp devaluation is bringing the Brazilian currency back to an all-time high of early 2021, when the dollar was quoted at R $ 5.69.

The rise in US rates and the adoption of government measures that undermine the fiscal balance in Brazil have interrupted – at least temporarily – the process of developing the real.

The euro is quoted today at R$ 5.51, a sharp decline compared to a month ago (5.13) but still far below the price at the beginning of the year (R$ 6.42).

In the last month the euro has weakened considerably against the dollar, going from 1.07 to 1.01.

The Brazilian stock exchange (Bovespa)

Ibovespa closed the session on 6 July 2022 at 98,719 points, -10.4% compared to the close at the beginning of June (110,186 points on 6 June 2022). The loss in the period was -21% in dollars and -17% in euros.

The threat of a recession in the US heavily penalized the performance of companies linked to the commodities sector and the Brazilian stock market in general.

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