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Brazil: Eyeing the new president’s first steps – Danske Bank

Analysts at Danske Bank expect Brazil’s GDP to expand 2.0% in 2019 and 2.6% in 2020, while they see downside risks to their forecast from a tightening monetary stance.

Key Quotes

“Brazil’s economic growth accelerated to 1.3% y/y in Q3 18, up from a revised 0.9% y/y expansion in Q2 18, as the previous strike-driven sentiment has vanished and the country’s economy has started benefiting from the US-China trade tensions. In expenditure terms, the economy has been boosted by a sharp rise in investments and exports.”

“The win by the market-friendly presidential candidate Jair Bolsonaro caused a rally in the BRL and other Brazilian assets. Yet, markets have calmed down and started looking to 2019, when Bolsonaro is set to take his first steps as Brazil’s president. The key question for Brazil’s macro economy remains a pension reform proposal, which is crucial for fixing the country’s bleeding fiscal side.”

“he increase in Brazil’s public net debt as a percentage of GDP hit a 15-year high in October (53.3%). The current increase should be curbed in 2019, if fiscal-side reforms are implemented, giving space for appreciation of the BRL.”

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