Investors might start liking Brazil again. The country’s new economic team, a powerful trio announced by the re-elected president Dilma Rousseff on Thursday, gave the market a sense that Brazil might have hit bottom.
Granted, Brazil’s fourth quarter growth is expected to be negative in comparison to the previous fourth quarter. And the third quarter GDP print, released on Thursday, was a basis point above zero. However, investors on Friday got a chance to hear Central Banker Alexandre Tombini’s take on inflation, and got a clearer sense of what new Finance Minister Joaquim Levy and new Budget Minister Nelson Barbosa have in mind going forward.
Can it get any worse? Of course it can. But that’s not the base case scenario any longer. Meanwhile, the third quarter details are as follows: private consumption continues to decelerate by growing 0.18% yearly and dropping 0.32% quarterly. Investment growth remains in negative territory but shows early signs of recovery, down 8.39% yearly and up 1.33% quarterly. Exports grew 4.17% on the year versus 0.99% over the second quarter and imports grew 0.93% yearly and 2.4% over the second quarter. Even though Brazil’s third quarter grew just 0.1% overall from the same period a year ago, this might be approaching a bottom, if this new economic team is serious about tighter fiscal control over the economy.
Reforms are necessary for Brazil in the years ahead, Schroders economist Craig Bothmam said in a note posted on the U.K. investment firm’s website last week.
If the economy continues to perform weakly in the fourth quarter, it would bring 2014 growth to 0.1%. But next year should be better, says Tony Volpon, the head of emerging markets Americas at Nomura Securities in New York.
“The new year should mark the beginning of a slow recovery process,” he says, adding that his fixed income teams sees 2015 growth coming in at 1.5%, rising to 2% in 2016.