BACCF Directory 2018

Bolsonaro’s Win Heralds a New Beginning and Prospects for Greater Economic Growth

Following a nearly three-year recession that ended in December 2016, Brazil embarked on an economic recovery at the beginning of 2017, but which has gained little momentum thus far in 2018. A combination of external forces – an investor retreat from emerging markets, global trade war fears, and a strong US dollar – combined with election year uncertainty, all signaled caution for Brazilian businesses and investors. This prompted some businesses to put their spending plans on hold while investors awaited clarity on the election outcome, both of which materially slowed the pace of the economic recovery. Additionally, over much of this year, rising interest rates and strong economic growth in the US funneled global investment away from emerging markets, including Brazil, and into dollar-denominated assets. Nevertheless, the upswing in Brazil’s economy has become more widespread this year with a modest resurgence in consumer spending and business investment. The acceleration in these sectors is being reinforced by falling interest rates, low inflation and a modest rebound in commodity prices. Lower interest rates in particular are underpinning consumer spending and fueling renewed demand for consumer credit. Industrial production is on an upward path, especially output of consumer durables, such as automobiles, and capital goods such as business equipment and industrial machinery. The current economic recovery is being further underpinned by the government’s pro-business reforms, especially labor reforms, which took effect late last year. The improved economic operating environment