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By Mauro Mantica

On July 13, 2022, the Chamber of Deputies definitively approved the Proposed 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 (R $ 53 every two months), the increase of Auxilio Brasil (subsidy for families low income) from R $ 400 to R $ 600 per month and a subsidy for taxi drivers (R $ 200 per month).

Also called “PEC Kamikaze”, this maneuver would not have been possible without the “state of emergency” being decreed at the same time, given that there are only three months left for the presidential elections and the Brazilian Constitution prevents Parliament from passing laws that could benefit a candidate, in this case the current president Bolsonaro.

In the meeting of the Monetary Policy Committee (COPOM), which ended on 3 August 2022, Banco Central increased the discount rate (SELIC) by 0.5%, bringing it to 13.75%. The intervention of the Central Bank therefore continues to try to contain the inflation rate. In the press release that accompanied the announcement, Banco Central did not rule out a further increase in SELIC, of ​​0.25%, in one of the next meetings.

The IPCA index, the main indicator of consumer price inflation, is showing signs of a slowdown. In June it recorded a growth of 0.67%, bringing the annual index to + 11.89%. In the first two weeks of July, inflation was only + 0.17%, bringing the annual index to + 11.39%.

The unemployment rate is still decreasing, from 9.8% in May to 9.3% in June 2022. It is the lowest level since 2015. Between the first and second quarter of 2022, approximately 3 million jobs were created. work.

The average income, on the other hand, fell by 5.1% in one year: more employed, but with lower wages on average and in sectors characterized by informality.

The International Monetary Fund (IMF) increased the Brazilian GDP growth forecast for 2022 from + 0.8% to + 1.7%. This is a significant revision, but one that still leaves Brazil behind the economies of emerging countries, particularly in Latin America. For 2023, the expected growth is 1.1%, down from the + 1.4% expected in April.

Two months into the first round of the presidential election, Lula maintains a strong lead over Bolsonaro. According to the latest Datafolha research, carried out on 27/28 July 2022, Lula has 47% of voting intentions against Bolsonaro’s 29%. In a possible second round, to be held at the beginning of November, Lula has 55% against 35% of Bolsonaro. According to some economic analysts, this gap should however narrow in the coming weeks, thanks to the economic support measures put in place by the government and the expected decrease in inflation.

The automotive market is improving, which in July 2022 recorded a 3.7% increase in sales compared to the same month of 2021. In the coming months, the situation should further improve thanks to the new reduction in the Tax on Industrialized Products (IPI) , approved by the Government at the end of July. Fiat is the sales leader in 2022 with a share of 21.7%, followed by General Motors (14%), Volkswagen (12.2%), Toyota (10.5%) and Hyundai (10.2%).

Today, 4 August 2022, the fifth generation of mobile Internet (5G) will also be activated in the city of Sao Paulo. The three operators (TIM, Vivo and Claro) have installed about 462 antennas in the city, but have already requested to be able to install another 450, to increase coverage and signal quality.

Petrobras has announced record profits for the second half of 2022: R $ 97.8 billion, which will go in part to the Brazilian state, its main shareholder with 28.67% of shares.

Here is the trend of the main indicators:

GDP (Value added at market prices)

2016 2017 2018 2019 2020 2021 2022
GDP – real growth (%) -3,3% 1,3% 1,8% 1,4% -4,1% 4,5% 1,97%

The GDP growth forecast for 2022 is still improving, today estimated at + 1.97%. The entry into force of the measures provided for by the “PEC Kamikaze” and the reduction of the IPI, the services and large-scale distribution sector should give a further stimulus to growth.

Inflation and real/dollar exchange 

2016 2017 2018 2019 2020 2021 2022
IPCA (IBGE – %) 6,29% 2,95% 3,69% 4,20% 4,38% 10,0% 7,15%

The year-end inflation estimate is finally down. Thanks to the fall in the price of oil and the reduction of taxes on its production, transport costs are also decreasing, so as to allow companies to reduce costs.

The continuation of the Covid containment measures in China penalized Brazilian exports and reduced prices also on the domestic market, with a deflationary effect.

The forecast for 2022 is down sharply compared to two months ago, at + 7.15%.

2016 2017 2018 2019 2020 2021 2022
Exchange rate R$/US$ (end of the period) 3,25 3,25 3,75 4,01 5,19 5,57 5,20

The dollar is quoted today (4 August 2022) at R$ 5.28, a slight decrease compared to a month ago (R$ 5.41). The appreciation of the Brazilian currency is therefore maintained compared to the historical lows of the beginning of 2021, when the dollar was quoted at R$ 5.69.

By the end of 2022, the estimate of the dollar price went from R$ 5.05 to R$ 5.20.

The euro is quoted today at R $ 5.37, down from a month ago (R $ 5.51) and still far below the price at the beginning of the year (R $ 6.42).

Interest rate

2016 2017 2018 2019 2020 2021 2022
Nominal Interest rate (end of the períod) 13,75% 7,00% 6,50% 4,50% 2,00% 9,25% 13,75%
Real interest (deflactor: IPCA) 6,91% 4,05% 2,81% 0,3% -2,4% -0,75% 6,60%

The SELIC discount rate is now 13.75% per annum.

The year-end forecast of the economists consulted by Banco Central is that there will be no further adjustments until the end of 2022.

Only in 2023, with inflation hopefully under control, should a cycle of decline in SELIC begin.

It is expected to stabilize at least until the end of 2022 and then begin a gradual decrease in 2023 (Selic forecast for the end of 2023: 11.00%).

If the forecasts were to be respected, the real interest rate at the end of 2022 should reach 6.60%, the highest in the last 6 years.

The Brazilian stock exchange (Bovespa)

Ibovespa closed the session on August 3, 2022 at 103,775 points, + 5.2% compared to the close at the beginning of July (98,609 points on July 4, 2022). Growth in the period was + 6.2% in dollars and + 8.8% in euros.

In July, the Brazilian stock exchange benefited from the increased risk appetite on the part of international investors, following the positive performance of the American stock exchanges.

The improvement in the domestic economic situation (downward trend in inflation, rising GDP, falling unemployment, etc.) bodes well for the next quarter, but international tensions (US and European inflation, Russia-Ukraine war, China tension -Taiwan, Chinese lockdown among the most significant factors) and the approaching presidential elections may negatively affect the performance of Brazilian assets.

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