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2022: Threat of Recession Haunts Brazil

Thursday, December 30, 2021
2022: Threat of Recession Haunts Brazil

By Ana Beatriz Bartolo

Investing.com - Brazil is facing a very challenging outlook in 2022. Even with the downward trend in inflation, the macroeconomic scenario will consist of high interest rates and a devalued real, in addition to concerns about the country's fiscal situation. The presidential elections at the end of the year should act as an aggravating factor, bringing more volatility to the market.

“For 2022, the expectation for domestic consumption is not good. We expect stability or a small drop, but not growth," comments Rafaela Vitória, chief economist at Banco Inter. "We expect a growth of 0.5%, but this aggregate data reflects little, because we will have sectors in decline and sectors growing."

Vitória explains that agriculture and some industries, such as extractive industries, are better positioned for next year. On the other hand, the service and retail sectors should be affected by inflation and lower salaries leading to a decrease in families’ purchasing power.

The consumer durable goods industry may also see weaker performance, since it is lapping a higher base with recent strong quarters. "The overall temperature may point to a recession, because the sectors with strong prospects employ fewer people," explains Vitória.

"It is difficult to have a good year. The fact that Brazil is structurally weak makes it much more vulnerable to shocks of all kinds," says economic consultant Zeina Latif, who foresees a mild recession for 2022. The country's productivity is low, with a relatively poorly skilled labor force, and national industries are technologically outdated, which, according to the specialist, can be seen in the increase in imports even with the rising exchange rate and weakening real.

"We have a very weak, almost stagnant economy. We had a quick turnaround after 2020, [when the pandemic crisis started], but this brought problems, especially in fiscal matters," comments Latif.

Latif explains that the recent injection of capital into the economy was essential to minimize the economic impacts brought by the pandemic, but the national industry was not prepared to meet the country's repressed demand. "In general, Brazil spent too much and without a clear focus. So part of our inflation, which started already last year, was the result of over-stimulating the economy," she explains.

Furthermore, the increase in public spending without compensatory measures has generated mistrust about the government's fiscal commitment, which in turn puts pressure on the exchange rate and intensifies inflation and the interest rate. Among the analysts consulted by Investing.com Brazil, the forecast for 2022 is that the dollar will be in the range of R$ 5.40 to R$ 5.50, with the Selic (Brazilian interest rate) between 10.5% and 12% and an IPCA (inflation mark or CPI) close to 5% year over year, on average.

2022 Presidential Election

Latif explains that in the last year there has been an "institutional weakening of the (constitutional) spending limit," with off-budget spending and the recent discussions about the PEC of Precatórios, which changes the country's fiscal anchor. This all will have an effect on the presidential elections: "Now the market debate is about how committed the competitive candidates are to the cap rule and the fiscal responsibility law." For Latif, long-term or structural projects will only get underway after the election result is clarified.

"There is a favorable situation for a center-left candidate to win, because the level of activity in Brazil is very weak and the average consumer’s income and purchasing power has dropped a lot, either because the labor market is bad or because inflation is high. In a situation like this it is very difficult to raise a liberal, free-market flag," explains André Perfeito, chief economist at Necton Investimentos.

Although the names of the presidential candidates are not yet decided, Perfeito points out that among the possibilities presented so far, the main center-left representative that could win the elections next year is former president Luiz Inácio Lula da Silva, of the Workers' Party (PT). With a possible victory for the PT, the specialist believes that the Central Bank would not feel pressured to reduce the Selic, which at Necton is forecasted to reach 11.5% in 2022.

Perfeito explains that although interest rates have reached 2% in recent years, this reduction had no significant impact on the economy; on the contrary, it brought, "a series of dysfunctionalities in the financial system. Besides, the bond and stock markets were very disconnected.

"The moratorium interest rate was well below the perceived risk. When the interest rate goes higher, this will indicate that asset prices are low and this may generate a positive mood in the market in 2022, despite the scenario indicating that Lula da Silva will win the elections," comments Necton's chief economist.

No help from the international scene

Besides the internal challenges, the international economic climate will also be of little help to Brazil. "World trade should be stagnant and facing an inflation challenge in 2022," Latif says. "With the Fed raising interest rates and world trade growing more modestly, it is a more difficult environment for emerging countries," explains the economic consultant.

For the economist and professor at USP, José Francisco de Lima Gonçalves, the expectation is that the United States monetary policy will tighten global financial conditions over the next year, which together with doubts about Chinese demand, should impact commodities. The scenario gets even more complicated with the bottlenecks in the economy and the questions about the Omicron coronavirus variant.

"There is not much demand coming from abroad for Brazilian exports, so there will be large production in agriculture, but without pricing power. Besides, less favorable financial conditions abroad pose difficulties for investments here, which increases speculative or fixed income positions,'' explains Gonçalves.

Read also: Expectations for the Turkish Economy in 2022: Is There a Plan for Inflation?

See our full outlook series here.

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16-01-2022 23:47:41 (UTC+7)

EUR/USD

1.1421

+0.0007 (+0.06%)

Summary

↑ Buy

Moving Avg:

Buy (10)

Sell (2)

Indicators:

Buy (8)

Sell (0)

EUR/USD

1.1421

+0.0007 (+0.06%)

Summary

↑ Buy

Moving Avg:

Buy (10)

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Indicators:

Buy (8)

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GBP/USD

1.3680

+0.0008 (+0.05%)

Summary

↑ Buy

Moving Avg:

Buy (12)

Sell (0)

Indicators:

Buy (6)

Sell (1)

USD/JPY

114.43

+0.22 (+0.20%)

Summary

Buy

Moving Avg:

Buy (7)

Sell (5)

Indicators:

Buy (4)

Sell (2)

AUD/USD

0.7211

+0.0004 (+0.06%)

Summary

Sell

Moving Avg:

Buy (4)

Sell (8)

Indicators:

Buy (1)

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USD/CAD

1.2536

-0.0016 (-0.13%)

Summary

Buy

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Buy (7)

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EUR/JPY

130.68

+0.34 (+0.26%)

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↑ Buy

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EUR/CHF

1.0439

+0.0010 (+0.10%)

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Neutral

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Gold Futures

1,819.65

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Silver Futures

23.043

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Copper Futures

4.4220

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↑ Sell

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Crude Oil WTI Futures

83.44

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Brent Oil Futures

86.09

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Natural Gas Futures

4.319

+0.096 (+2.27%)

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US Coffee C Futures

239.65

+2.65 (+1.12%)

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↑ Buy

Moving Avg:

Buy (11)

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Buy (5)

Sell (3)

Euro Stoxx 50

4,272.19

-43.71 (-1.01%)

Summary

Buy

Moving Avg:

Buy (6)

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Indicators:

Buy (8)

Sell (1)

S&P 500

4,662.85

+3.82 (+0.08%)

Summary

↑ Buy

Moving Avg:

Buy (9)

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Indicators:

Buy (7)

Sell (2)

DAX

15,883.24

-148.35 (-0.93%)

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↑ Buy

Moving Avg:

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Indicators:

Buy (6)

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FTSE 100

7,542.95

-20.90 (-0.28%)

Summary

Sell

Moving Avg:

Buy (1)

Sell (11)

Indicators:

Buy (3)

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Hang Seng

24,217.43

-165.89 (-0.68%)

Summary

Sell

Moving Avg:

Buy (5)

Sell (7)

Indicators:

Buy (1)

Sell (4)

US Small Cap 2000

2,161.48

+2.05 (+0.09%)

Summary

↑ Buy

Moving Avg:

Buy (12)

Sell (0)

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IBEX 35

8,806.60

-10.30 (-0.12%)

Summary

↑ Buy

Moving Avg:

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Indicators:

Buy (7)

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68.110

+0.360 (+0.53%)

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Sell

Moving Avg:

Buy (4)

Sell (8)

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52.59

+1.53 (+3.00%)

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↑ Sell

Moving Avg:

Buy (3)

Sell (9)

Indicators:

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Sell (9)

Allianz SE VNA O.N.

227.00

-0.40 (-0.18%)

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↑ Sell

Moving Avg:

Buy (0)

Sell (12)

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Sell (7)

Adidas AG

252.35

-3.85 (-1.50%)

Summary

Buy

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Buy (8)

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Buy (5)

Sell (1)

Deutsche Lufthansa AG

7.241

-0.043 (-0.59%)

Summary

↑ Buy

Moving Avg:

Buy (12)

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Siemens AG Class N

145.86

-5.64 (-3.72%)

Summary

Neutral

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Buy (6)

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Indicators:

Buy (4)

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Deutsche Bank AG

11.954

-0.246 (-2.02%)

Summary

Sell

Moving Avg:

Buy (6)

Sell (6)

Indicators:

Buy (1)

Sell (6)

 EUR/USD1.1421↑ Buy
 GBP/USD1.3680↑ Buy
 USD/JPY114.43Buy
 AUD/USD0.7211Sell
 USD/CAD1.2536Buy
 EUR/JPY130.68↑ Buy
 EUR/CHF1.0439Neutral
 Gold1,819.65↑ Buy
 Silver23.043↑ Buy
 Copper4.4220↑ Sell
 Crude Oil WTI83.44↑ Sell
 Brent Oil86.09↑ Sell
 Natural Gas4.319↑ Sell
 US Coffee C239.65↑ Buy
 Euro Stoxx 504,272.19Buy
 S&P 5004,662.85↑ Buy
 DAX15,883.24↑ Buy
 FTSE 1007,542.95Sell
 Hang Seng24,217.43Sell
 Small Cap 20002,161.48↑ Buy
 IBEX 358,806.60↑ Buy
 BASF68.110Sell
 Bayer52.59↑ Sell
 Allianz227.00↑ Sell
 Adidas252.35Buy
 Lufthansa7.241↑ Buy
 Siemens AG145.86Neutral
 Deutsche Bank AG11.954Sell
Mua/Bán 1 chỉ SJC
# So hôm qua # Chênh TG
SJC Eximbank6,115/ 6,155
(-5/ -5) # 1,145
SJC HCM6,110/ 6,170
(10/ 0) # 1,160
SJC Hanoi6,110/ 6,172
(10/ 0) # 1,162
SJC Danang6,110/ 6,172
(10/ 0) # 1,162
SJC Nhatrang6,110/ 6,172
(10/ 0) # 1,162
SJC Cantho6,110/ 6,172
(10/ 0) # 1,162
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Sản phẩmVùng 1Vùng 2
RON 95-IV2400024480
RON 95-II,III2390024370
E5 RON 92-II2291023360
DO 0.05S1838018740
DO 0,001S-V1873019100
Dầu hỏa1719017530
ↂ Giá dầu thô thế giới
WTI$83.45+0.390.47%
Brent$85.60+0.450.52%
$ Tỷ giá Vietcombank
Ngoại tệMua vàoBán ra
USD22.540,0022.850,00
EUR25.234,8826.649,42
GBP30.246,4531.537,99
JPY192,66203,94
KRW16,5020,10
Cập nhật lúc 11:41:39 17/01/2022
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