Six months ago, market operators predicted a 3 percent growth for Brazil’s GDP this year. Now, it seems more consensual that Brazil will grow at a disappointing rate of 1%. The Central Bank’s Economic Activity Index showed a 0.73-percent retraction in the economy in February against January, leading banks to forecast a decline of the GDP for 2019’s first quarter—official results will be published on May 30.

Brazil's GDP could shrink after Q1 2019 stock market

brazil inflation rate prediction

Here are some forecasts:

</span></p> <ul> <li><b><i>Fator</i></b><span style="font-weight: 400;"> projects a -0.2 percent growth rate. Signs of a slowing down economy are found: decreasing energy consumption, lower trust levels, and high industry idle capacity.</span></li> <li><b><i>Itaú</i></b><span style="font-weight: 400;"> changed its forecast from +0.3 to -0.1%. That brought expectations for the year from 2 down to 1.3%. The bank said there are no signs of improvement in investments and that <a href="">local industry is stagnant</a>.</span></li> <li><b><i>Bradesco</i><span style="font-weight: 400;"> recognized that economic activity remains weak and that signs of recovery remain incipient. Stable retail sales and a drop in the services sector in February are on pace with a -0.1-percent growth rate.</span></b></li> <li><span style="font-weight: 400;">To the press, Sergio Vale, chief economist of </span><b><i>MB Associados</i></b><span style="font-weight: 400;">, said that the pension reform bill remains a major roadblock towards regaining investors&#8217; trust.</span></li> <li><b><i>Mongeral Aegon Investimentos</i></b><span style="font-weight: 400;"> blames the <a href=",corte-de-producao-da-vale-deve-abater-10-do-crescimento-do-pib-em-2019,70002790621">drop in Vale&#8217;s mineral production</a>, following the <a href="">Brumadinho tragedy</a>. The firm expects 0.2% growth for this quarter. &#8220;[Even if growth is negative in this quarter] it&#8217;s not the end of the world. If Q2 is also negative, then we have a problem,&#8221; said chief economist Julio Cesar Barros.</span></li> </ul> <h2>Pension reform fails first test</h2> <p><span style="font-weight: 400;">Without making a deal with centrist parties, the government failed its first test in passing the pension reform bill in Congress. The bill was supposed to be voted on by the House&#8217;s Constitution and Justice Committee tomorrow, but it has been postponed to next week. Before, the committee voted on (and passed) a bill reducing the government&#8217;s power over the federal budget.</span></p> <p><span style="font-weight: 400;">Filled with rookie congressmen, President Bolsonaro&#8217;s Social Liberal Party (PSL) is being trumped by regimental maneuvers by the opposition. To save face, PSL members voted for the change, trying to pass along the idea that this was what the government wanted from the start.</span></p> <p><span style="font-weight: 400;">Congress also reacted badly to the government&#8217;s decision to end an 11-year policy of raising the minimum wage above the inflation—impacting pensions directly. The move puts more pressure on the government&#8217;s reform, which will demand workers to retire later and contribute more in order to get full pensions.</span></p> <h2>Investors bailing on Brazil?</h2> <p><span style="font-weight: 400;">The São Paulo stock exchange hit the symbolic 100,000-point mark a couple of weeks ago—only to crash after spats between the President Jair Bolsonaro and House Speaker Rodrigo Maia. Volatility was seen again last week, as the government blocked a bump in diesel prices to avoid a clash with disgruntled truck drivers threatening to strike. The move worried markets about Petrobras&#8217; true independence from political interests, plunged the company&#8217;s papers and pushed the stock exchange index down.</span></p> <p><span style="font-weight: 400;">But looking at the global index could lead to overseeing a growing pessimism among market operators about the Brazilian economy. Investors have recently shifted their portfolios from companies depending on domestic consumption, to focus more on exporters. The best-performing companies this year are driven by sales abroad—notably in the commodities and energy sectors.</span></p> <hr /> <p><img class="alignnone size-large wp-image-15790" src="" alt="Brazil's GDP could shrink after Q1 2019 stock market" width="1024" height="682" srcset=" 1024w, 300w, 768w, 610w, 1360w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <p><span style="font-weight: 400;">On the flip side, the worst-performing shares belong to companies selling to Brazilian consumers, such as retail chains, shopping mall administrators, and travel firms. That reveals a lack of faith from investors that the economy will gain traction this year. GDP growth in Brazil is driven by family consumption—so, not believing in domestic consumption is tantamount to betting against the Brazilian economy.</span></p> <p><span style="font-weight: 400;">The election of Jair Bolsonaro injected optimism in local investors—which were the driving force of the recent surge in Brazil&#8217;s stock market. Since taking office, however, the president has proven not to be the libertarian investors were hoping for, eroding the appetite for assets which depend on a healthier local economy.

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MoneyApr 16, 2019

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