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Elections in the spotlight

October 1, 2018

Polls consolidate Bolsonaro (PSL) in the lead and Haddad (PT) ranking second in the presidential race

The Brazilian economy in September 2018

Voting intention polls consolidate Jair Bolsonaro (PSL) as the front-runner and Fernando Haddad (PT) as runner-up in the presidential race. Bolsonaro was stabbed while campaigning in Minas Gerais state. The Central Bank kept the benchmark Selic interest rate unchanged at 6.5% p.a. Activity indicators declined in July. Inflation remains low but is set to accelerate due to FX depreciation.

Polls consolidate Bolsonaro (PSL) in the lead and Haddad (PT) ranking second in the presidential race

As we approach the first round of the election, electoral polls became more frequent in September.

According to the latest Datafolha survey, Bolsonaro leads the presidential race with 28% of voting intentions, followed by Fernando Haddad, with 22%, Ciro Gomes (PDT) with 11%, Geraldo Alckmin (PSDB) with 10%; and Marina Silva (REDE), with 5%. On its first poll of the month, Datafolha showed Jair Bolsonaro with 24%, Ciro Gomes with 13%, Marina Silva with 11%, Geraldo Alckmin with 10%, and Fernando Haddad with 9%.

The latest Ibope poll showed similar results: Jair Bolsonaro in the lead with 27%, followed by Fernando Haddad, with 21%, Ciro Gomes, with 12%, Geraldo Alckmin with 8%, and Marina Silva, with 6%. Earlier in the month, Ibope showed Jair Bolsonaro with 22%, Ciro Gomes and Marina Silva with 12%, Geraldo Alckmin with 9%, and Fernando Haddad with 6%.

In the second round simulations, Datafolha shows Jair Bolsonaro in disadvantage against Fernando Haddad, Ciro Gomes and Geraldo Alckmin, and technically tied with Marina Silva. Ibope, on the other hand, shows Jair Bolsonaro technically tied with Fernando Haddad, Geraldo Alckmin, and Marina Silva, and losing to Ciro Gomes. 

Jair Bolsonaro is stabbed while campaigning in Minas Gerais

Presidential candidate Jair Bolsonaro was attacked with a knife while campaigning in Juiz de Fora (Minas Gerais state). He was sent to the local hospital, and later to Albert Einstein Hospital (in São Paulo). The candidate left the hospital on Saturday (29), after 23 days of hospitalization. According to medical reports, he shows good recovery, but will not be able to participate on the campaigns and debates.

Central Bank maintains the Selic stable at 6.5%

The Brazilian Central Bank’s Monetary Policy Committee (Copom) delivered the widely expected decision, leaving the Selic rate unchanged at 6.5% p.a., in a unanimous vote. The committee made it clear that, faced with a balance of risks that is tilted towards higher, rather than lower, inflation, its members stand ready to act. A gradual Selic rate hike would follow deterioration in inflation expectations and/or balance of risks. While noting that the economy still operates with wide slack, the committee expressed concern with possible second-round effects of FX depreciation and appears to be closely monitoring inflation expectations. For now, we expect the Copom to leave the benchmark rate unchanged at 6.5% p.a. in October, but we may revisit this call as new developments on the inflation scenario unfold.

Activity indicators decline in July

Industrial production fell 0.2% mom/sa in July, much better than the median of market expectations (-1.5%) and remains above the truckers’ s stoppage level. Compared to July 2017, industrial output advanced 4.0%. Core retail sales dropped for a third consecutive month, by 0.5% in July, while broad retail sales (including vehicles and construction material) decreased 0.4% — disappointing expectations in both cases. Broad retail sales are 1.5% lower than before the protest. Real revenues from services also declined, by 2.2% mom/sa, the worst July reading since 2011.

Given these results, the Itaú Unibanco monthly GDP rose 0.2% mom/sa and 1.6% yoy in July. Notwithstanding the increase, the recent dynamics of confidence surveys and diffusion of the main monthly indicators point to weak underlying growth in the Brazilian economy.

Unemployment falls in July; CAGED points to 110k new jobs

The nation-wide unemployment rate receded to 12.1% in August, a better reading than the market anticipated (12.2%). Seasonally-adjusted unemployment dropped 0.1 p.p. to 12.2%. The result was driven by higher employment, particularly informal jobs. Overall, the unemployment rate continues to improve gradually, but at a weak pace.

According to the Ministry of Labor’s CAGED registry, a net 110k formal jobs were created in August, topping market expectations (60k). Seasonally-adjusted figures point to 51k new jobs during the month, the best reading since December 2017. The three-month moving average advanced to 17k from 5k. Hiring as well as layoffs are slightly higher than in late 2017.

IPCA remains low but is set to pick up

The consumer price index IPCA declined -0.09% in August, printing below the lowest of market estimates (-0.06%). Year-to-date, the IPCA went up 2.85% and the year-over-year change decelerated to 4.19%. The mid-month IPCA-15 rose 0.09% in September, the lowest reading for the month since 2006. Our preliminary forecast for the headline IPCA in September is a 0.48% increase, pushing the year-over-year rate up to 4.53% from 4.19% in August. In general, recent FX depreciation should impact wholesale price indexes more quickly and intensely, and in that sense, may exert additional pressure on consumer inflation in the coming months.  

The consolidated public sector has a primary deficit of 16.9 billion in August

The consolidated public sector posted a primary deficit of 16.9 billion reais in August, which was better than market consensus (-19.0 billion). Regional governments and state-owned companies had surpluses of 3.4 billion and 0.6 billion reais, respectively. The consolidated primary deficit accumulated over 12 months widened to 1.2% of GDP in August from 1.1% in July. The latest monthly reading confirms the outlook for a better primary result than the target set for the deficit in 2018. The general government’s gross debt rose to 77.3% of GDP in August from 77.2% in July, even as development bank BNDES returned the equivalent of 1.0% of GDP to the National Treasury. Due to FX depreciation, the public sector’s net debt declined to 51.2% of GDP in August from 52.2% in July. A favorable fiscal scenario depends strictly on the approval of reforms (such as the pension reform) that would signal a gradual return to primary surpluses that are compatible with structural stabilization in public debt.

Federal revenues totaled 109.8 billion reais in August, slightly disappointing market expectations. The change over 12 months reached 1.1% and normalized after a substantial increase in July.

Financial assets

In September, the Ibovespa increased 6.9% in dollars and 3.5% in local currency. Country risk measured by the CDS fell 40 bps and ended the month at 263 bps. The exchange rate appreciated to 4.00 reais per dollar. 

What’s next

Presidential elections will be the highlight of next month. The first and second rounds are scheduled to be held in October’s first and last Sunday (7 and 28, respectively). News about the elections, including voting intention polls, will be closely monitored in the coming weeks. 

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