The Brazilian market will continue moving by the news about voting intentions for the elections in October. Today it will be known who will be the candidate of the PSB after Eduardo Campos died last week. If the appointment of Marina Silva is confirmed, the market will probably continue supported by expectations of reform.
Meanwhile, UBS experts have revised their macroeconomic outlook of the emerging country, especially on the investment side, which they expect now to fall by 5.9% in 2014 (prev. -2.2%; from +5.2% in 2013) and a fall by 2.0% in 2015 (prev. -1.6%). In addition, they have also revised down their private consumption outlook, which they now see growing by 1.8% this year (prev. 2%; from 2.6% in 2013) and reaching 2.1% in 2015 (prev. 2.5%), “in light of a faster deterioration in consumer sentiment and clearer evidence of a turning point in the labor market.” Finally, from the external market in 2014, UBS analysts don’t see any contribution and only a slight positive contribution in 2015 (+0.1ppt).
UBS comments are as follows:
“Given increased political uncertainty and more doubts about how Brazilian economic policy will evolve in the coming years, we do not expect an investment recovery any time soon. Even worse, there is evidence to suggest that the labour market is at a turning point and the unemployment rate may soon start to rise, serving as an additional drag on household consumption.
There are doubts about the sustainability of the current economic model, which is based on a loose fiscal stance (tax breaks and increased social spending), expansive quasi-fiscal policies (government bank credit growth), loose monetary conditions, and control of regulated prices (in the context of limited space for fiscal subsidies). In our view, these doubts weigh on confidence and prevent private investment from recovering.
In our view, improved confidence and a more consistent macroeconomic framework are critical going forward if Brazil wants to boost its growth rate. However, we do not foresee any substantive changes until at least 2015. In the meantime, policy uncertainty will continue to weigh on investments and consumption.”
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