Itaú BBA - Brazil Scenario Review
  • Pension reform is approved, as economy shows signs of improvement  

    Economic activity is in a gradual but healthy process of acceleration, driven by the expansion of private credit.

  • Deepening the monetary adjustment  

    We now expect the central bank's Monetary Policy Committee (Copom) to extend the easing cycle, bringing the Selic base rate to 4.5% by the end of 2019

  • Slow recovery amid global uncertainty  

    We continue to forecast GDP growth of 0.8% this year and 1.7% for 2020 and an exchange rate of 3.80 BRL/USD in 2019 and 4.00 BRL/USD in 2020

  • Copom starts the easing cycle  

    The BCB cut rates by 50 bps in July, and in our view signaled another cut of the same magnitude in September.

  • Pension reform advances, giving green light to interest rate cuts  

    We expect the BCB to initiate a new monetary easing cycle at its meeting in late July, with a 50-bp rate cut.

  • Pension reform moves forward amid global headwinds  

    We reduced our growth forecasts for 2019 (to 0.8% from 1.0%) and 2020 (to 1.7% from 2.0%), incorporating a sharper deceleration in the global economy.

  • Activity loses momentum  

    We lowered our growth forecasts for 2019 and 2020. We also expect Selic rate cuts ahead, conditional to the approval of the pension reform.

  • Slower growth, interest rate cuts depend on reforms  

    We reduced our GDP growth forecasts for 2019 (to 1.3%) and 2020 (to 2.5%), and now expect the Selic rate at 5.75% in 2019 and 5.5% in 2020.

  • New Central Bank governor assumes amidst an uncertain outlook  

    The communication from the Monetary Policy Committee’s (Copom), and the news flow on pension reform will play a key role

  • Softer growth and lower inflation  

    We reduced our GDP growth forecasts for 2018 (to 1.1% from 1.3%), 2019 (to 2.0% from 2.5%) and 2020 (to 2.7% from 3.0%)

  • Gradual rebound in economic activity as fiscal expectations improve  

    We forecast a shrinking primary budget deficit, from 1.7% of GDP in 2018 to 1.3% in 2019 and 0.8% in 2020

  • A more benign inflation scenario  

    Our inflation forecasts were revised downward, to 3.8% this year and 3.9% next year

  • A new administration, the same challenges  

    Public debt sustainability requires the administration to rein in mandatory expenditure, which cannot happen without social security reform

  • Waiting for economic reforms  

    Without reforms, fiscal results will begin to deteriorate again

  • A more volatile scenario  

    After somewhat of a truce in July, international and domestic uncertainties hammered the BRL over the past month

  • Production normalized in June, but underlying growth lost momentum  

    Activity indicators suggest that underlying growth continues to lose steam despite normalization in industrial production in June

  • Uncertainties hamper the recovery  

    The continued deterioration of financial conditions led us to reduce our GDP growth forecasts to 1.3% in 2018 and 2.0% in 2019

  • Scenario gets increasingly challenging  

    We lowered our GDP growth forecasts to 1.7% in 2018 , due to tighter financial conditions and the impact of the truckers’ stoppage

  • Truckers’ strike on the spotlight  

    The government approved several measures to end the truck driver’s strike, with negative fiscal impact

  • A more complex scenario  

    Lower GDP, higher BRL and inflation forecasts

  • Higher uncertainties  

    Growing uncertainties for the political and macroeconomic scenario, both internal and external.

  • Easing cycle: another cut, followed by a pause  

    We now expect the central bank to reduce the Selic rate to 6.5% in March and interrupt the cycle right after that.

  • Benign scenario for emerging markets supports the BRL and reduces inflation  

    We revised our estimate for the exchange rate due to the decline in risk premia over the recent months.

  • A better fiscal reading, for now  

    We revised our estimate for the primary budget deficit in 2017 to 1.9% of GDP from 2.3%.

  • Economy improves amid greater risks  

    Pension reform back on the table, but there is still uncertainty regarding its approval

  • Getting closer to the end of the cycle  

    The date to end the easing cycle was left wide open.

  • Falling inflation paves the way for marginally lower interest rates  

    Our forecast for the Selic rate in early 2018 was reduced to 6.5% from 7.0%

  • Senate approves new long-term rate  

    The Senate approved MP 777/2017, creating the long-term rate TLP to replace the TJLP.

  • Signs of a rebound amid fiscal deterioration  

    We revised upward our forecast for 2017 GDP growth, to 0.8% from 0.3%.

  • Tougher fiscal challenges  

    Tax hike is not enough to meet the primary result targets.

  • Falling inflation paves the way for lower interest rates and a lower inflation target  

    We reduced our inflation estimates to 3.3% from 3.7% in 2017, and to 4.0% from 4.1% in 2018.

  • A setback for reforms and a more challenging scenario  

    A more turbulent political scene tends to delay reforms in Congress.

  • Hanging on the Social Security Reform  

    We expect approval of the Social Security reform in Congress by the end of 3Q17.

  • Inflation continues to fall, Central Bank increases pace of easing  

    With lower, current and expected, inflation, the BCB has increased the pace of easing to 100bps.

  • We now expect a Selic rate of 8.25% in 2017  

    Based on BCB recent communication, we now expect the Selic rate to reach 8.25% by the end of this year (down from 9.25%).

  • Moving toward the new equilibrium  

    Anchored expectations and widespread disinflation create an opportunity to reduce the inflation target.

  • Falling inflation brings forward the cycle of interest rate cuts  

    The central bank has increased the pace of interest rate cuts. We forecast the Selic rate at 9.75% in 2017 and 8.5% in 2018.

  • Lower growth, higher risks  

    We reduced our growth forecast for 2016 and 2017. Fiscal reforms continue to move ahead, but political uncertainty increased.

  • Dealing with a more uncertain world  

    We now expect a more depreciated exchange rata and a 25-bp rate cut in November, due to a more uncertain external scenario.

  • The Reforms Begin  

    Approval of fiscal reforms is critical to pave the way for a monetary easing cycle and for a sustainable economic recovery.

  • Congress prepares to vote on fiscal reforms  

    If approved, the measures will cause federal expenditure to decline as a percentage of GDP in the coming years.

  • Recovery in sight, but sustained growth demands reforms  

    We have revised our GDP growth forecast to 2.0% in 2017. However, this scenario depends fundamentally of the fiscal reforms.

  • Clearer recovery signs  

    Activity has been showing signs of a recovery. However, any recovery will be sustainable only if fiscal reforms are approved.

  • Fundamentals improve, but fiscal progress is still lacking  

    A stronger and sustainable economic recovery depends on the approval of fiscal reforms, especially on the expenditure side.

  • Reforms start to take shape, but uncertainties remain  

    The recession continues, but recent data continues to improve. We now expect a smaller GDP contraction in 2016.

  • Fresh efforts to push through adjustments and reforms  

    The chances of fresh efforts being made to push through fiscal reform and adjustments are increasing.

  • On hold domestically, amid a favorable external scenario  

    The outlook for Brazil is a binary one. If the country takes the path of reform, there would be room for an economic recovery.

  • Recession deepens, reforms needed  

    The ongoing fiscal/political problems would maintain the economy under pressure and block the approval of reforms and other measures.

  • We forecast a 4% drop in GDP and lower interest rates in 2016  

    Economic activity has not yet stabilized. In our scenario of falling activity and inflation, we see the Selic rate ending 2016 at 12.75%.

  • A challenging fiscal and activity scenario continues  

    Recession will persist in 2016. The depressed economic activity makes the fiscal adjustment even more challenging.

  • Political uncertainty and continued recession in 2016  

    The political and economic uncertainty will probably continue in 2016.

  • No signs of economic stabilization  

    Economic activity continues to decline. There are no signs of stabilization in production or demand.

  • Fiscal challenge, volatile markets  

    There are no signs of a recovery in economic activity.

  • Facing the storm  

    The scenario for Brazil has deteriorated, given the difficulties in the fiscal adjustment.

  • More challenges, lower targets  

    The scenario has proved more complex. We now forecast a longer recession and a weaker exchange rate.

  • Recession continues  

    Indicators suggest new decline in the economy during the third quarter. We’ve revised downwards our GDP forecast in 2015 and 2016.

  • A difficult reversal  

    Inflation has increased and growth has worsened in Brazil, making it harder to conduct monetary and fiscal policy.

  • Markets improve, but activity continues to decline  

    We raised our forecast for the IPCA this year to 8.5% from 8.2% due to tax hikes and greater increases in some regulated prices.

  • GDP declines further  

    The various macroeconomic adjustments continue to advance amid economic and political uncertainties.

  • Worsening prospects  

    We reduced our GDP forecast for 2015 to -0.5%. We raised our exchange rate forecast for 3.10 reais per U.S. dollar.

  • A slowing economy faces risks of power and water rationings  

    December data showed a deceleration in economic activity and a deterioration in the fiscal accounts.

  • The adjustment has started and it won’t be easy  

    Adjustments in fiscal policy and regulated prices will be deeper.

  • Some Adjustments  

    For a decade, the Brazilian economy benefited from favorable external and domestic conditions, which we no longer can rely on.

  • Minimal adjustments going forward  

    The need for macro adjustments will probably set the tone for economic policy in the coming months.

  • Voting time  

    Recent data suggest a slow recovery in economic activity throughout 3Q14.

  • Delayed Recovery  

    After weakness in 2Q14, the recovery in economic activity has been sluggish.

  • Activity Stalls; Inflation Wanes  

    The consumer price index posted a near-zero reading in July, but the year-over-year rate remained at 6.5%.

  • Economy Playing Defense, Unchanged Interest Rates in 2015  

    Coincident indicators point to weaker activity in 2Q14.

  • Consumers and Businesses Step on the Brakes: Activity Decelerates  

    We revised our GDP forecast for 2014 to 1.0%.

  • Tepid Activity, End of Tightening Cycle  

    IPCA surprised on the downside in April.

  • Food for Thought  

    Food and transportation costs boost inflation in March.

  • The Risks of Implementing the Fiscal Target  

    The government’s announcement of the first budget review for 2014 revealed a more realistic fiscal target and budget assumptions.

  • Growth Without Energy  

    We have lowered our forecast for GDP growth in 2014 to 1.4% from 1.9%, and to 2.0% from 2.2% in 2015.

  • Global Growth Does Not Improve Domestic Outlook  

    Global growth is set to be faster than had been expected, tending to favor Brazil’s economy.

  • Monetary Tightening Closer to the End, Fiscal Result Still in Decline  

    Our estimates for GDP growth were reduced to 2.2% from 2.4% for 2013 and maintained at 1.9% for 2014.

  • Constraints for further fiscal expansion  

    The room for further fiscal and quasi-fiscal policy expansion has narrowed.

  • Less pressure on the currency  

    We have revised our forecast for the end of 2013 to 2.35 reais per dollar from 2.45.

  • Fuel for Inflation  

    We incorporated in our scenario an adjustment in fuel prices before the end of 2013.

  • Lower Growth and Less Room to Maneuver  

    GDP expansion in 2013 should be lower, despite the expectation of faster growth in 2Q13.

  • What a Difference the Exchange Rate Makes  

    During the process of portfolio reallocations, the drop in the Brazilian currency was sharper than for its peers.

  • Lower Growth and a Weaker Currency  

    We reduced our growth forecasts to 2.4% in 2013 and 2.8% in 2014 (from 2.8% and 3.3%, respectively)

  • Brazil: Lower GDP Growth, More Fiscal Stimulus  

    Recent decisions confirm the intention to promote a more accommodative fiscal stance (at least) in 2013.

  • Fiscal Deterioration to Contain Inflation and Interest Rates  

    We forecast a falling primary budget surplus and a widening current-account deficit

  • Brazil: On the Borderline  

    Even if interest rates rise, they will remain at historically low levels

  • Brazil: Sluggish Confidence Recovery  

    We lowered our forecasts for GDP growth to 3.0% from 3.2% in 2013 and to 3.5% from 4.0% in 2014. We raised our estimate for consumer inflation to 5.7%.

  • Brazil: Unsteady State  

    Intervention in the foreign-exchange market reveals that the economic policy goals and preferences may change, as could interest rates over the coming months.

  • The Elusive Quest for Growth  

    We have reduced our forecasts for GDP growth to 0.9% from 1.5% in 2012 and to 3.2% from 4.0% in 2013.

  • Slower Growth and Lower Interest Rates  

    A slower rebound in investment worsens the GDP growth outlook and Selic rate will likely remain low for a longer period.

  • Brazil: More Tax Cuts, More Stimuli  

    We have lowered our forecast for the primary budget surplus to 2.6% of GDP, and revised our forecast for the exchange rate to 2.0 reais per dollar.

  • Brazil: Signs of Recovery, Though Not Widespread  

    Inflation is more widespread than growth.

  • Brazil: Slow Recovery in Activity and an Extra Grain of Inflation  

    We raised our 2012 IPCA inflation forecast to 5.2%; We now forecast the dollar at 1.95 at year-end 2012.

  • Time to Adjust  

    The economy is still adjusting to a less benign environment

  • A More Proactive Short-Term Agenda  

    Incomes are rising, public spending is growing and the currency is weaker. But the data point to a more moderate pickup in growth this year.

  • Growth Risks, Growth Boosters  

    The economy is rising, but the risk of a weaker recovery remains.

  • All Engines Forward  

    While conditions favor future growth, a slow recovery has compounded official concerns regarding the rising currency.

  • Selic Rate at One Digit: What Lies Ahead?  

    With the Selic rate now on a firm path to a level at or close to 9%, the next relevant question is: Where will it go next year?

  • Weak, But No Longer Weakening  

    The economy remains weak. As interest rates fall and public spending picks up, growth will likely build up again and peak in the second half.

  • Global deceleration, local reaction  

    The economy has weakened, but a mix of low interest rates, more public spending, tax breaks and credit stimulus will rekindle growth in 2012


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