Has Bolsonaro blown it for Brazil?

[Judi Lynn]

By: Alan Dobbie
07/06/2019

Brazil’s Ibovespa stockmarket benchmark has given investors a thrilling ride over the past few months, but reality is now beginning to set in. Local equities, which account for about 7.5% of a typical emerging markets exchange-traded fund, rallied almost 20% after the election of President Jair Bolsonaro last October. Yet poor recent data and a succession of political missteps have cast doubt on whether he can pass promised structural reforms.

Brazil endured a severe recession in 2015 and 2016 and a tentative recovery has now gone into reverse, says Jeffrey Lewis for The Wall Street Journal. The economy contracted 0.2% in the first quarter, the first fall since 2016. A deadly dam accident in January weighed on the mining industry, which saw output fall a whopping 6.3% quarter-on-quarter.


Early signs suggest that the second quarter has also been “very weak”, writes William Jackson for Capital Economics. “There is now a real risk that the economy will slip into a technical recession”.

Crucial change
Tackling long overdue reforms would bolster confidence, but there has been scant progress on that front. Brazil’s unsustainable public-pensions system – many people retire in their fifties on as much as 70% of their final salary – is a key concern for investors. More than 40% of the federal budget is devoted to social security. Unchecked, the growing national debt will be equivalent to the size of the entire economy by 2023.

More:
https://moneyweek.com/508520/has-brazils-bolsonaro-blown-it/