In our opinion, there is substantial spare capacity in the Brazilian economy.
Fiscal policy stance should remain restrictive, in line with the adjustment through the spending cap
Unemployment rate is set to recede slowly, despite faster GDP growth
Public debt dynamics will be more favorable in the next years
Stronger-than-expected activity recovery and higher inflation rates were the highlights in the last months.
The prospect of faster growth may attract heftier inflows that could offset, at least to some extent, the impact of lower interest rates
Our analysis indicates that we can count on a positive impulse for economic activity in 2021/22.
Maintaining the spending cap is critical
Fiscal challenge is about 3,6 p.p. of GDP
We estimate potential GDP growth between 1.5% and 2.0% in coming years.
Trade war is likely to decrease global growth, prompting central banks around the globe into easing stances - including Brazil.
We see evidence that the power of monetary policy increased significantly in recent years
We forecast 1Q19 GDP to shrink 0.2% qoq/sa
We revised our GDP growth and Selic rate forecasts for 2019 and 2020.
Reform is essential to fiscal rebalancing
Business confidence is highly correlated with formal job creation.
In the competitiveness agenda, we see a tax simplification and reducing red tape as the most urgent fronts to work on
In our view, the recent increase in service inflation is just data noise and not a sign that will likely continue to accelerate.
We updated our GDP growth, inflation and exchange rate expectations for 2019
Reforming Social Security is the main challenge of the new government
Activity still slow, but confidence shows improvement. We revise our inflation projection, reflecting falling energy and fuel prices
We estimate a real neutral interest rate of 2.5% to 3%.
International reserves serve as insurance, but keeping them entails costs, so there is a debate about their appropriate level.
We changed our GDP, inflation, exchange rate and interest rate forecasts for 2018 and 2019.
We summarized the possible economic agenda for the next government, as well as the number of Congressmen needed for each change
We updated the main proposals of the candidates, based on official texts of the parties, recent interviews and statements of advisors
We detail the results of the first round and the second round polls, when available, for the elections of each Brazilian state
We revisited our inflation forecasts for 2018 and 2019; tax collection up, despite weak activity; real accumulating gains in the month
We calculated the transfer rate from other candidates needed for Haddad and Bolsonaro to win in the second round
It is a recurring argument that it’s too early to analyze second-round scenarios. What do the past elections say?
First-round votes and rejection rates help predict the outcome of the second-round.
We analyzed the profile of the voters that led Jair Bolsonaro and Fernando Haddad’s advance of voting intentions in recent polls. See below.
Weaker than expected GDP, but tax collection decouples from activity; BRL accumulating huge depreciation in the last couple of months
Which candidates have the greatest potential to absorb the huge contingent of blank, nulls and undecided votes?
How do spontaneous votes change over the election period?
If PT decides to replace Lula as its candidate to presidency, will his eventual substitute be able to catch up on time?
Turkish economy to decelerate without policy change, but limited effects on EM
We’ve prepared a table summarizing the main proposals
We’ve analyzed how voting intentions evolved over the past elections, from five weeks before the first round until the election day
CNI / Ibope poll shows that 62% of respondents will use television to obtain information about candidates
He affirmed that it is inaccurate to say that the pension reform would solve the fiscal problem
According to the media, members of the "big-center" parties communicated in the past few days their intention to support Geraldo Alckmin
Due to a methodological change the uncertainty about the level of each pre-candidate's rejection rate was reduced.
This is an important decision, because the big-center parties will have around 18% of the time available for TV and radio campaign
The Ibope poll a higher percentage of blank, null and undecided voters than in previous polls conducted by other institutes
Updating our model, we estimate Brazil has a 36% chance of taking the cup home, followed by England and Belgium, both at 10%.
Paulo Guedes defended the adoption of a new pension capitalization regime and a reform of the state.
We built an electoral undefinition index and verified that the 2018 election is, thus far, the most uncertain since 1989.
In the long run, the exchange rate depends on the amount of foreign funds available to finance the current account deficit.
They emphasized that fiscal correction is urgent, but believe the spending cap is excessive.
Brazil has the higher changes of winning, followed by Germany and Argentina.
The main candidates have lower voting intentions today than in past elections in most states
The main downward contributions in the month came from the price dynamics in Brazil and Mexico
Brazil’s component weakened once again
Our monitor of economic policy signs highlights the proposals presented by Mauro Benevides Filho
Financial conditions of the region as a whole deteriorated in the month
In 2014, votes for blanks/nulls/undecided were from people with a different profile than today’s blanks/nulls/undecided
As long as uncertainties prevail, the central bank will likely keep the Selic benchmark rate stable at the current level
Blank and null voters are mainly women, from the Northeast region, with basic education, low income and over 35 years of age
In the scenario without Lula, none of the main candidates improved after Joaquim Barbosa’s withdrawal.
This is the second edition of our weekly report on the 2018 elections.
The Itaú Activity Surprise Index declined to -0.24 in April (from 0.08 in March)
The main downward contributions in the month came from the price dynamics in Brazil, Mexico and Colombia.
Financial conditions in the region as a whole posted an improvement in the month
We are launching today a new weekly report, focused on the 2018 elections
Elections remain without a clear favorite for the presidential race
We examined whether the narrower the interest rate differential, the bigger the impact of a change in the Selic on the BRL.
The Brazilian subindex moved sideways, as inflation releases came virtually in line with analysts’ expectations.
A batch of stronger than expected activity releases in Mexico pushed the subindex higher.
Financial conditions in the region as a whole deteriorated at the margin
Results point to a heterogeneous recovery so far
The discussion of central bank autonomy is not new in Brazil, but it has resurfaced in recent months
The index decreased to 0.02 in February and now is at neutral level
The Brazilian index showed slight changes and continues on positive territory
Financial conditions in the region deteriorated at the margin, reflecting the global risk-off event of early February
We see progress on dispute settlement and rules of origin, the two most controversial issues
The index registered the first positive figure since July 2016.
The Brazilian index turned positive, as virtually all releases published in January came on the stronger side of expectations.
In this report, we present the breakdown of Datafolha’s electoral poll results
Widespread global growth with low volatility contributed to the improvement in the financial conditions index.
Our Brazil 2018 Elections Guide encompass a series of charts and analysis based on recent polls and the current election framework.
Favorable global environment, recovery is becoming more widespread in Brazil
We outline a gross fixed capital formation monthly series
Even with an economic recovery, the current-account deficit will remain at still-moderate level.
Contracting activity is meaningful to explain current account adjustment in Brazil, Peru, South Africa, Turkey and Russia.
The surprise index fell in December to the lowest reading since July 2012.
Overall, surprise indexes for most countries turned less negative in the last month of 2017.
The Itaú Unibanco Market Conditions climbed to 0.23 in December from 0.15 in the previous month
Central bank data shows that corporate loans are starting to recover
New methodology, similar result: industry is warming up
In the market scenario, we anticipate inflation at 2.8% for 2017 and 4.2% for 2018 and 2019.
The revised series include activity segments that were not covered by the original index.
The impact of the natural hazards (hurricanes and earthquakes) over activity, albeit temporary, was widespread.
Downside surprises in Brazil, which had been moderating in the last months, staged a comeback in November.
In Brazil, the Itaú Unibanco Market Conditions Index dropped to 0.17 from 0.41.
The Central Bank of Argentina has made progress in fighting inflation, but consumer prices continue expanding far above target.
The better global growth is supportive of financial conditions and is good news for EM economies.
The Brazilian surprise index declined again in October, whereas Mexican data came stronger than expected.
The Chilean index fell deeper into negative territory, driven by the lowest monthly inflation reading on record for September
In October, the Itaú Unibanco Market Conditions Index dropped to 0.36 from 0.54 in the previous month
We are pleased to present our new Brazil Macro Visual, containing a series of charts about the latest macro trends and views for the future.
Our main takeaways from the IMF meetings held in Washington D.C. from October 13 to 15, 2017
The highlight was the moderation of the Mexican index, as September releases hinted at more benign inflationary pressures.
The Brazil subcomponent edged down in September, as labor market releases came in-line with the market’s prospects.
TLP should contribute to substantially boost the Selic rate’s influence on the economy
The Itaú Unibanco Market Conditions Index (IU-MCI) fell to 0.72 from 0.86
We estimate declines in the inflation forecasts for 2017 and 2018.
After four consecutive months of declines, the Brazilian surprise indicator increased in August.
The Brazilian component was the only one to improve in August
The Itaú Unibanco Market Conditions Index advanced to 0.83 in August from 0.81.
Without adjustments, potential GDP would be closer to 1.5%.
Without meaningful reforms, we do not expect the 2018 target to be met
Proposals must be sanctioned by October 7 in order to be effective in the next elections
The increase is a consequence of stronger data in June.
The recently-approved labor reform can help to boost productivity, and supply and demand for workers.
Brazil’s index dropped again, amid another batch of downside inflation surprises.
Mexico’s index turned positive, as the slowdown has proved more gradual than the market had anticipated.
NAFTA will live on, with changes in favor of the U.S. but without transformational implications for Mexico
The Itaú Unibanco Market Conditions Index (IU-MCI) advanced to 0.36 in July from -0.31 in the previous month.
We have revised the trajectory of the unemployment rate in our scenario
We believe that the economic environment will continue to be disinflationary and we expect the Copom to cut the Selic rate
The Itaú Activity Surprise Index retraced in June, dragged by negative surprises in Mexico, Chile and Peru.
Inflation came below median expectations in Brazil and Peru; Mexican indexes surprised to the upside again.
The movement is a product of deterioration in both commodity prices and financial variables.
The bulk of the slowdown in Latin American can be attributed to a less supportive external scenario
The IR may signal the need to reduce the uncertainty and the scope of possibilities on the future course of monetary policy.
Maintaining the Brazilian risk at lower levels requires the continuity of the reforms and a benign international scenario.
A simultaneous exit is the safest approach to address idiosyncratic differences amongst Eurozone countries
The Brazilian financial variables subcomponent deteriorated, presenting volatility in face of political uncertainty.
In Brazil, the general price indices (IGPs) registered deeper-than-expected monthly deflation.
Our proprietary Itaú Activity Surprise Index rose to 0.22 in May from 0.10 in April, led by improvements all across LatAm.
On October 22, Argentines will vote to renew one-third of the Senate seats and one-half of the Lower Chamber’s.
The country may count on robust buffers and is therefore less vulnerable to both internal and external shocks
Strong contribution from agriculture and a favorable carryover for industrial production.
It is possible to see significant economic growth without a significant recovery in the level of employment.
We show a model that explains this apparent decoupling.
Reserves usually end up having costs, but the benefit is that they lower liquidity risk.
The decline owes to both a drop in commodity prices and worsening financial variables (mostly due to the former).
Brazil kept the index in the negative range, as the widespread disinflationary trend extends itself.
Our Itaú Activity Surprise Index inched up to to 0.12 in April from 0.11 in March
Our scenario assumes a strong contribution from agricultural production.
Political gridlock to block attempts at na EU exit referendum
Keeping a short transition to the minimum age of 65 is crucial.
Taylor Rules predict more accommodative monetary conditions in the region
Leaving out Mexico, inflation data reinforce the ongoing disinflationary context.
Brazilian market conditions worsened in March, due to a drop in commodity prices.
Due to methodology tweaks in Brazilian data, this month’s underperformance should be taken with a grain of salt.
Europopulism in Europe might weaken ahead, but Italy’s situation requires attention.
The IR should corroborate signs of intensification in the monetary easing cycle indicated by recently issued official documents.
In June this year, there may be a window of opportunity to reduce the Brazilian inflation target.
Em junho deste ano, pode estar aberta uma janela de oportunidade para reduzir a meta de inflação brasileira.
Our Itaú Activity Surprise Index decreased to 0.03 in February from 0.14 in January.
Leaving out Peru, the Latin American countries covered are seeing more modest downside surprises, or even positive ones.
The IU-MCI was virtually flat in February and remained expansionary.
Fundamentals continue to suggest a recovery ahead
The fiscal position of municipalities is less concerning when compared with the central government and the states.
In worst-case scenario, U.S. border tax would push the Mexican peso’s fair value to 23.1 to the dollar
The reality suggests that activity in the region is picking up, but that a recovery will be slower than expected.
Following the recent trend, inflationary pressures continue to recede in Brazil, Colombia and Chile.
The movement was driven by both Brazilian financial variables and commodity prices.
If monetary policy is perfectly credible, a reduction in the target enables lower inflation and lower nominal interest rates.
A national CPI should show lower inflation than the current index.
GDP likely declined again in 4Q16
This report aims to correct ten common misunderstandings about the proposal and about the current situation of Brazil’s Pension and Social Security systems.
Downward inflation surprises have been common in countries where activity has also been weaker than expectations.
Results were mixed, but the net effect was positive.
The Itaú Unibanco Market Conditions Index (IU-MCI) worsened to -0.03 from 0.44 in November.
The IR will probably reinforce the monetary authority’s recent statement which, as we see it, signals a 50 bps interest rate cut at its January meeting.
The solution for the structural crisis is by controlling spending.
The reform is necessary, given the aging of the Brazilian population.
Inventories are set to contribute positively.
Inflationary pressures continue to recede in most of the region’s economies.
The index continues to display volatile behaviour in the last few months.
The Itaú Unibanco Market Conditions Index declined to 0.44 from 0.75 in October. This deterioration was driven by external uncertainties.
We have estimated the exchange rates consistent with sustainable current account deficits in the long term for Latin America
Investment probably declined again
The heat map analysis reinforces the fact that activity has stopped retreating, but there are no clear signs of a rebound yet.
Fiscal expansion will lead to tighter monetary policy by the Fed
Inflationary pressures are milder in most countries the region (especially in Brazil).
A rebound from Chile was the month’s highlight, while Colombia remains at the tail-end.
The improvement was due to idiosyncratic factors in Brazil, which boosted the Brazilian financial variables subcomponent.
To reach the 2017 inflation target will depend heavily on the next round of wage negotiations.
We show that the recent evolution of service-price inflation is in line with economic fundamentals.
The spending cap is crucial to the rebalance in public accounts and the return to economic growth
The dissipation of temporary shocks and more stable Exchange rates bring relief to inflation.
The South American economies are still lacking in performance.
After a significant appreciation in the first half of 2016, the financial variables in IU-MCI were steady in recent months.
We expect the Mexican peso to end 2016 and 2017 at 17.5 to the dollar
The IR is likely to show forecasts below the target for 2018, consistent with our scenario for an interest rate cut in October.
We forecast GDP growth of 2.0% in 2017 and 4.0% in 2018. However, this scenario fundamentally depends on fiscal reforms.
The country is consistently delivering positive results, while the South American economies have been disappointing.
The strong improvement in market conditions since April this year suggests an upward bias to GDP growth this year.
The disinflation process should continue in the region due to weak economic activity and more favorable exchange rates.
The currency remains vulnerable to changes in external financial conditions.
We expect investment growth in 2Q16
Currencies appreciation in 2016 is due to the less restrictive stance of the Fed and idiosyncratic factors of each country
Countries overall disappointed, most deteriorating substantially compared to the month of June.
The expansionary level of the market environment is compatible with our scenario of stabilization of economic activity ahead.
We find that after a deep recession, emerging and LatAm economies boast higher growth rates than the average.
Our results suggest that the recession continues, although there are some signs of improvement.