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Going down: Brazil economic woes hit stocks, currency
RIO DE JANEIRO, May 19, 2019 (BSS/AFP) – Atrophying growth forecasts and
waning confidence in President Jair Bolsonaro sent Brazil’s stocks and
currency to their lowest level of the year this week, as analysts warned of
further falls.
Since touching a record 100,000 points in mid-March, the Bovespa has
fallen 10 percent and wiped out gains made since far-right Bolsonaro took
power on January 1 on a promise to revive Latin America’s biggest economy.
The benchmark index closed just below 90,000 on Friday, while Brazil’s
currency traded at its lowest level against the dollar in eight months,
breaking through four reais.
The sharp declines have been fanned by uncertainty over US-China trade
talks that has pummelled stocks and currencies in emerging markets, which are
perceived as riskier bets.
But the “external headwinds” have been compounded by concerns over
Brazil’s feeble economy, which has struggled to grow since emerging from the
devastating 2015-2016 recession, said William Jackson of London-based Capital
Economics.
“There was a lot of hope when Bolsonaro came to power that the economy
would turnaround, but we have seen no evidence of this,” Jackson told AFP.
This week’s massive nationwide protests over education spending freezes,
money laundering accusations against Bolsonaro’s eldest son and the slow pace
of economic reforms were adding to the general malaise.
“The economy is really flirting with recession,” Jackson added.
The bleak outlook was underscored by economy minister Paulo Guedes, who
warned this week that Brazil was “at the bottom of the well” as he slashed
the government’s forecast for 2019 economic growth to 1.5 percent from 2.2
percent.
That was followed by central bank chief Roberto Campos Neto, who flagged
a likely contraction in the economy in the first quarter following a slowdown
at the end of 2018.
Market analysts have pared their full-year growth forecasts 11 weeks in a
row and now expect the economy to expand by an anemic 1.45 percent, according
to the latest central bank survey.
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Some even saw that estimate as optimistic.
Marcos Casarin of Oxford Economics warned Brazil appeared headed for
around one percent growth for the third year in a row.
“Brazil has never had such a slow recovery,” said Casarin, attributing
lackluster activity to post-recession deleveraging by the Brazilian
government, businesses and consumers, which has sapped spending, borrowing
and investment in the country.
“Everyone had to pay back debt at the same time.”
But the risk of a technical recession — two straight quarters of
contraction — was low.
“We are already at the bottom,” Casarin noted.
“We could potentially see a double dip, but that would have to be
triggered by a domestic crisis” — such as failure to pass the pension reform
bill.
– Uphill battle –
Bolsonaro has done little to help boost optimism among investors or
voters.
The pro-market reform agenda that helped get the former army captain
elected in October has stalled as he struggles to push his signature policy –
– an ambitious overhaul of the pension system that he says will bankrupt
Brazil if not passed — through Congress.
There are fears the proposal could be significantly watered down by the
time it is approved, probably later this year, eroding any positive impact on
the economy.
“There was excessive optimism going on (with Bolsonaro’s victory) and now
they are just more realistic,” said Casarin.
“It is pretty clear that he is struggling as president to make Congress do
what he wants.”
One of the challenges for Bolsonaro is that his ultraconservative Social
Liberal Party only holds around 10 percent of the 513 seats in the lower
house of Congress.
That means he is relying on ad-hoc alliances with lawmakers in various
parties who are part of his evangelical, pro-agribusiness, pro-gun base.
It does not bode well for his reforms, the economy or the markets.
“There’s a longer stretch to be run to revamp the economy,” Thomaz Favaro
of Control Risks consultancy told AFP.
“I think the risk of further declines is very much real.”
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