Itaú BBA - Marina Silva Takes the Lead in Presidential Polls

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Marina Silva Takes the Lead in Presidential Polls

September 1, 2014

According to the latest Datafolha poll, Marina Silva is tied with President Dilma Rousseff in the first round, with 34%

The Brazilian economy in August 2014

After the tragic death of Eduardo Campos, Marina Silva was nominated presidential candidate and is now leading in the pre-electoral runoff polls. GDP dropped by the second consecutive quarter, and job creation weakened. The government announced measures to boost credit. Inflation dropped slightly but remained close to the upper limit of the target. The primary surplus declined, and the current account deficit showed some retreat. The Ibovespa index appreciated sharply.

Campos dies in accident and Marina becomes a candidate in the presidential elections 

On August 13, Eduardo Campos, presidential candidate for the United for Brazil coalition and president of the PSB party, died tragically in a plane crash. His death, at age 49, was a great loss not only for his family and friends but also for Brazil, who lost a young and promising leader. The coalition decided to nominate Marina Silva in his place, who had already run for president in the 2010 election as candidate of the PV party.

According to polls, Marina Silva is tied with Dilma Rousseff in the first round and leads in the runoff 

According to the latest Datafolha poll, Marina Silva is tied with President Dilma Rousseff in the first round, with 34%. The PSDB candidate, Aécio Neves, fell from second to third place, with 15%. In the runoff simulation, Marina would win, with 50% of the votes, while Rousseff would get 40%. Before he died, Eduardo Campos was in third place in the polls, and Dilma Rousseff was leading the runoff simulation against Aécio Neves.

GDP growth was negative in the first two quarters of the year 

Brazilian GDP dropped by 0.6% in 2Q14. With this result, growth accumulated in four quarters decreased to 1.4% in 2Q14 from 2.5% in 1Q14. Both industrial activity and gross fixed capital formation contracted for the fourth consecutive quarter. Due to the seasonal adjustment, 1Q14 GDP was revised to a negative reading. The combination of two negative readings in the first semester worsens the perspective for growth this year. The results suggest that GDP growth this year will be somewhere between 0.0% and 0.2%, which is lower than our previous forecast of 0.6%.

Limited job creation in July 

According to data from the Labor Ministry (CAGED), net job creation stood at 11.8k in July. In seasonally adjusted terms, this represents a net creation of only 2k jobs, taking the 3-month average to -7k. There was a decrease of 15k jobs in the Manufacturing sector. Agriculture saw a loss of about 10k jobs, and the Service sector lost 12k. Overall, the numbers are in line with weaker economic activity and lower total job creation.

Government announces new measures to stimulate credit 

The government announced new measures to stimulate credit in the economy. Among them, the Brazilian Central Bank (BCB) announced new measures involving reserve requirements, with the potential to release up to BRL 25 billion in the market, according to BCB. At the same time, the Ministry of Finance changed real estate and auto financing rules.

IPCA-15 in line with expectations 

The IPCA-15 index rose 0.14% in August. The main upward contributions came from electricity, wages paid to household help and airfare. Over 12 months, the IPCA-15 dropped slightly, to 6.49% (6.51% until July), remaining around the upper limit of the target of 6.50%.

Primary surplus continues to decline 

The public sector posted a primary deficit of BRL 4.7 billion in July, which included a BRL 1.9 billion deficit posted by the central government, a BRL 2.2 billion deficit posted by regional governments and a BRL 603 million deficit posted by state-owned companies. The primary surplus accumulated over 12 months decreased to 1.2% in July from 1.4% of GDP in June, and our recurring result forecast (excluding atypical revenues and expenses) fell to 0.3% from 0.5%.

Current account deficit retreats for the first time since 2013 

In July, the current account deficit over 12 months reached BRL 78 billion, or 3.5% of GDP, the first drop since August last year. The trade surplus posted in the month helped, but the services deficit increased again after the temporary relief in June. Foreign Direct Investment accumulated over 12 months remained stable, at 2.8% of GDP.

Strong gains in Ibovespa

The Brazilian stock exchange appreciated by 9.8% in reais and by 11.1% in U.S. dollars. The exchange rate ended the month of August at 2.240 reais per dollar, an appreciation of 1.2%. The country risk measured by the 5-year CDS dropped 29 bps, to 127 bps.

Upcoming events 

September will be the last month of election campaigns before the first round, which will take place on October 5. In addition to the election programs on TV and radio stations, there will be debates between the candidates. The runoff is scheduled for October 26. The Monetary Policy Committee of the Brazilian Central Bank will meet on September 3 to decide on the interest rate.

 



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