Itaú BBA - Brazilian Lower House approves emergency aid for states and municipalities

Latam Talking Points

< Back

Brazilian Lower House approves emergency aid for states and municipalities

April 14, 2020

According to local media, the bill is not endorsed by the government and may be vetoed by the president if approved in the Senate

Talk of the Day 
 

Brazil

Last night the Lower House approved a bill that provides emergency aid for states and municipalities. With this measure, revenue losses from the states’ ICMS and municipalities’ ISS taxes, due to the covid-19 pandemic, will be compensated by the government for a period of six months. According to the estimates of the Lower House, this measure will have a fiscal impact of about BRL 80 billion. This estimate considers that states and municipalities will have a loss of revenue of 30% (compared to 2019) during this six-month period. The bill will now head to the Senate. According to local media, the bill is not endorsed by the government and may be vetoed by the president if approved in the Senate. 

The BCB released yesterday its weekly survey with market participants (Focus). The median of GDP growth expectations for 2020 receded to -1.96% (from -1.18%), reflecting the Covid-19 expected impacts on growth. The GDP expectations for 2021 increased to 2.7% (from 2.5%), while it has not changed for 2022 (at 2.5%). The median of IPCA inflation expectations for 2020 declined 20 bps this week (to 2.52%, accumulating a 68 bps decline in five consecutive weeks). Inflation expectations for 2021 and 2022 remained unchanged (both at 3.50%). The median of year-end Selic rate forecasts did not change for 2020 (at 3.25%), while it has receded to 4.50% in 2021 (from 4.75%). The median of year-end Selic rate forecasts for 2022 remained stable at 6.00%. Finally, the exchange rate expectations depreciated to: BRL 4.60/USD for 2020 (from 4.50); BRL 4.47/USD for 2021 (from 4.40); and BRL 4.40/USD for 2022 (from 4.30).

Coronavirus update: the latest official information from the Ministry of Health is that Brazil has 23,430 confirmed cases (up by 1261, vs. 1442 yesterday), with 1328 confirmed deaths (up by 105, vs 99 yesterday).

Day Ahead: IBC-Br monthly activity index for February will be released at 9:00 AM (SP time). We forecast a 0.3% mom/sa increase, based mainly on the February’s results for industrial production (+0.5% mom/sa), broad retail sales (+0.7% mom/sa) and the service sector real revenue (-1.0% mom/sa).

Chile

The central bank's monthly analyst survey shows significant changes to the macroeconomic outlook as the economy encounters a significant shock. Activity for this year is seen contracting 2.2% (+1.2% expected last month; Itaú: -1.9%; BCCh: 1.5-2.5% contraction), with a normalization to 3% next year (2.1% previously; Itaú: 4.6%; BCCh: 3.75-4.75%). Considering the underlying assumption of a notable domestic demand weakening, inflationary pressures are seen to have diminished with the yearend rate dropping 30bps to 3.2% (Itaú: 3.0%) and the one-year outlook is also 30bps down to 2.9%. The two-year expectation remains anchored at 3%. In this context, the policy rate is seen staying at the technical minimum of 0.5% until at least the end of 1Q21, with a gradual normalization process anticipated (1.25% in two years’ time; Itaú: 1.0% at the close of 2021). The scenario outlined from the survey results is broadly in line with our expectation and the central bank’s stance of retaining maximum monetary stimulus for a prolonged period to prevent the transitory shock becoming a more permanent one.



< Back