In today’s issue: Despite rising profits, companies aren’t investing more. Can the government suppress the crisis? Brazilian middle-class buying more real estate.
Despite rising profits, companies aren’t investing more
Brazilian companies have seen their profitability go up—while interest rates and companies’ cost of capital went down. Still, companies’ investments are not increasing at the level which would be expected in such a favorable scenario. According to Fipe (the Institute for Economic Research), this is down to doubts regarding the government’s ability to pass the pension reform, coupled with a high idle capacity leftover from the recession.
Economist Carlos Antonio Rocca, a Fipe board member, believes that investments will have to come from the private sector, as Brazil’s public administrations are close to bankruptcy. This puts the country in an almost binary situation: either the country passes austerity reform and the economy takes off, or the economy will tank once more.
For Economy Minister Paulo Guedes, the sheer unpredictability of rules in Brazil is also a big deterrent to investors. In that aspect, Mr. Guedes seems to at least have the support of Supreme Court Chief Justice Dias Toffoli, who has filled the court’s first-term docket with a laundry...