Itaú BBA - Waiting for economic reforms

Brazil Scenario Review

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Waiting for economic reforms

octubre 5, 2018

Without reforms, fiscal results will begin to deteriorate again

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

Activity indicators showed weak underlying growth in 3Q18. We currently forecast GDP growth rates of 1.3% in 2018 and 2.0% in 2019, but we see downside risks due to deteriorating financial conditions – largely caused by the uncertainty surrounding fiscal reforms.

Short-term fiscal readings improved, but fiscal sustainability requires reforms. We have narrowed our primary deficit estimates to 1.8% of GDP (from 2.1%) for 2018 and to 1.5% (from 1.6%) for 2019. Debt stabilization requires a surplus of at least 2.0% of GDP.

Our year-end exchange rate forecasts remain at 3.90 BRL/USD for both 2018 and 2019. Notwithstanding its recent stabilization, the Brazilian real is still vulnerable to domestic and international volatility.

Our estimates for consumer price index (IPCA) inflation have increased somewhat, to 4.5% for this year and 4.3% for 2019, due to a revised forecast for oil prices and greater inflationary inertia.

We expect the Copom to leave the benchmark interest rate unchanged at 6.50% in October, but we will be closely monitoring the exchange rate and inflation expectations.

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

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