Itaú BBA - Firmer stabilization 

Brazil Scenario Review

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Firmer stabilization 

August 7, 2020

Data show that the gradual reopening has allowed for some recovery of economic activity, but fiscal risks remain high.

Please open the attached pdf to read the full report and forecasts.


There are signs that the spread of the virus is stabilizing. Easing social distancing measures in different regions did not increase the number of daily deaths, which has hovered near the same high level since late May.

Data show that the gradual reopening has allowed for some recovery of economic activity. Our GDP forecasts remain at -4.5% for 2020 and +3.5% for 2021.


Fiscal risk remains high. We expect primary deficits of 11.0% of GDP in 2020 and 2.5% of GDP in 2021. Next year's deficit includes an increase in social spending that will be partially offset by tax hikes.

Notwithstanding the worsening domestic risks, we revised our year-end exchange rate forecast to BRL 5.25/USD (from 5.75 previously) to reflect a more benign global scenario for risky assets. Our estimate for 2021 remains at BRL 4.50/USD.

We revised our 2020 inflation forecast to 1.7% from 1.8%. Our call for 2021 remains at 2.8%, but with more significant downside risks. The inflation scenario remains benign, and this year's low inflation is expected to carry over into the next year.

The Copom reduced the Selic rate to 2.0% p.a., as expected, and indicated that eventual next movements will occur even more gradually (strongly suggesting a pause at the next meetings). We expect interest rates to remain at the current level until at least the end of 2020.
 

Please open the attached pdf to read the full report and forecasts.



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