Tag Archives: EWZ

Government is now evaluating changes to the pension plan without touching the constitution

After giving up on the Social Security reform – amid federal intervention in the security area of ​​the State of Rio de Janeiro, a measure that prevents changes in the Constitution while it is in force – ministers of the economic area now study changes in pensions that do not depend on constitutional amendments, said journalist Miriam Leitão in her blog on the website of the newspaper “O Globo” and in her participation in TV Globo’s “Bom Dia Brasil” program earlier.

The changes could be made during the federal intervention in Rio without even having to suspend the “state of exception”, says the columnist.

According to her, the ministers have studied measures that can improve the situation of the public accounts without moving on the Brazilian Magna letter. The idea would be to prioritize simpler procedural issues, without depending on the approval of three-fifths of each house of Congress in two rounds, as is the case of amendments.

The focus now would be on rules that change the benefit calculation and bring some fiscal relief in the future.

S&P Downgrades Brazilian Credit Rating to BB-

S&P Logo

Standard & Poor’s (S&P) downgraded Brazil’s sovereign credit rating from “BB” to “BB-” on Thursday. The rating was already in Junk territory, but it is now three steps below investment grade. On the other hand, the perspective for the rating has changed from negative to stable.

The downgrade was already expected by the market due to difficulties the government is facing to get the pension reform approved.

In the justification for the decision, the agency pointed out as “one of the main weaknesses of Brazil” the delay in approval of fiscal measures that rebalance the public sector accounts.

“Despite several advances by the Temer administration, Brazil has made slower-than-expected progress in implementing significant legislation to address structural fiscal issues and rising levels of indebtedness”, S&P said in a statement, adding that uncertainties of the 2018 elections aggravate this scenario.

In addition to the difficulty in approving reforms with long-term effects, S&P also pointed out that “there have been setbacks even with short-term fiscal measures – such as the decision to suspend the postponement of salary increases for public sector employees”.

Click here to read more about Brazilian Credit Rating

Brazilian stocks and Real fall amid difficulty in approving pension plan reform

Brazilian financial market reacts negatively again to the noise surrounding the pension reform. According to professionals, this morning’s news brought more negative elements about the possibilities of the government being able to approve the reform, which was reflected in the dollar, interest rate hikes and in the fall of the Ibovespa stock index at the opening of the trading session.

But, half an hour after business started, prices have worsened, reacting to comments from House of Representatives president, Rodrigo Maia, that would have expressed a more pessimistic reading regarding the number of votes to approve the reform.

This market behavior confirms the investors’ sensitivity to the pension plan reform news, something that has already been happening in the last sessions and that intensifies as the deadline for voting approaches.

The importance of this reform for the Brazilian stock, currency and interest markets has already been explained in this article from June in this blog.

Fitch keeps the Brazilian credit rating at BB, with negative outlook

Fitch Ratings reinforced Brazil’s credit rating on ‘BB’, with a negative outlook. That is, with the possibility of the classification being revised downwards in the future.According to the agency, the country’s ratings is limited by the structural weaknesses in public finances and high government debt, weak growth prospects and weaker governance indicators than the country’s peers, in addition to the recent history of political instability.

These weaknesses, Fitch added, are offset by the economic diversity of Brazil and consolidated civil institutions.

The negative outlook reflects the continuity of uncertainties related to the sustainability and strength of the Brazilian economic recovery, the prospects for medium-term debt stabilization and the progress of the legislative agenda, especially the pension reform.

Fitch expects a modest cyclical recovery in Brazil, with growth accelerating from 0.6% in 2017 to an average of 2.6% during 2018 and 2019. Consumption began to recover, sustained by lower inflation, which drives wage gains, stabilization of the unemployment rate and a recovery of consumer credit. A recovery in investment is also expected in the coming years.

According to the agency, the risks that can cause the government not to reach its fiscal goals in the short term include a weaker economic recovery and the difficulty in cutting public spending, especially in the election year. The implementation of the pension Reform and other adjustments will be necessary to ensure that expenditures meet the target in the medium term.

Fitch projects that Brazilian public debt will continue to grow during the forecasted period, even taking into account the impact of the National Treasury’s loan payments anticipated by the National Development Bank (BNDES) between 2017 and 2018. The agency projects that debt will reach 76% of GDP in 2017 (above the median of the “BB” countries, 45%) and advance to 80% in 2018.

Brazil’s current account deficit is expected to fall below 1% in 2017, according to Fitch projections, and should remain below 2% in the period projected by the agency. The deficit fell 80% during the first nine months of 2017, compared to last year, with the growth of the trade surplus.

Disposable Income Drops 10% in 6 months in Brazil

The combination of high inflation with layoffs and wage loss caused a downturn of unprecedented proportions in disposable income for consumption in Brazil. The Monthly Employment Survey (PME) of IBGE shows that real wages decreased by 10% between November 2014, peak of recent years, and last May. In the crisis of 2003, a decline of this magnitude happened after eight months of deterioration in the labor market. In the 2009 crisis, despite the recession, there was no drop in payrolls of this magnitude.

The decline is highlighted in part because of the seasonality for jobs. November is traditionally a strong month in terms of jobs created for the end of the year. Adjusting for seasonality, the drop indicates a nominal income 4.7% lower. In this series, the largest and only previous loss (considering the clipping six months) was 2.8% between April and October 2003.

While some of the effects of this drop in disposable income is already affecting the economy, the spiral effect that it can cause is probably just starting and will affect the Brazilian economy more heavily in the second half and into 2016.