Growth is secured

16/05/2018


Revista LIDE
After facing its biggest economic crisis ever, Brazil is now back on the path of growth. Considering the hazy scenario that is the presidential election later this year, the question now is how fast the economy will pick up. The market speculates that the Gross Domestic Product (GDP) in 2018 will grow 2 to 3%. Uncertainty coming from inside is caused by the large number of pre-candidates: as of April, there were 20 of them. Externally, the possibility of a trade war between the US and China looms in the air, something that could potentially cause the world economy to plunge deep down. "Under these conditions, any discussion about pace is rendered irrelevant. What matters is that the economy is growing again," says Sergio Vale, an economist with MB Associados consulting. The privatizations, concession auctions and the labor reform have all opened the door to new advancements. Many of those changes, however, will only start seeing results in 2019.

"Especially in infrastructure, the investments that came in last year were made to replace outdated equipment," says Frederico Turolla, of Pezco, an economic and business. consulting firm. What Turolla is referring to are the concession agreements for airports, highways and transmission lines auctioned off last year, and whose winners began to manage this year. For this and other reasons, a survey by Pezco concluded that 2018 will see the lowest growth in history (1.65% of the GDP) in transportation, power, sanitation and telecommunications. For 2019, the forecast goes up to 1.85%.

Gráfico Pezco  

Across November, December and January, Brazil recorded 12.7 million people unemployed per the IBGE, the country's Geography and Statistics Institute. This number corresponds to 12.2% of the total population, 0.4% less than the number recorded from November 2016 through January 2017. This slight improvement is irrelevant compared to the unemployment rate in 2014, at around 6.4%. Recent government reforms still haven't managed to create formal jobs. According to IBGE, the growth was sustained mainly by informal jobs. The numbers for 2017 show that 986,000 people became self-employed, 581,000 got informal jobs, 267,000 started working at home, and 562,000 have lost their formal jobs in the private sector. Families that managed to climb the social ladder are still afraid for their jobs, and people are still hesitant to spend on cars, property, clothing or engage in unnecessary spending. Consumption plays an important role in a booming economy. "Even at a slower pace, say 2.8% - which I think is a more realistic number -, even then the tendency is for household income to go up," states Augusto Sales, KPMG's strategy and consumer goods specialist. "The interest rate is low, making it easier for families to obtain credit, rethink their finances and pay off their debt." Just as the external market needs to have confidence if it's to invest in the country so do the people have to believe things are stable before they will start spending and make the economy grow. Sales believes this will come naturally so long as the reforms are kept in place. Moreover, the sector of infrastructure, which is the most promising, is always associated with job creation. "President Temer has been doing his homework. If we take into account that his approval rating is at 6%, what he's done is a miracle." If this administration managed to pull it through a scenario of complete political uncertainty, there will be more and better business opportunities past the October elections. The modest growth projections, of zero point two less in 2018, are the result of market fluctuations caused by the elections. "As October draws near, the economy becomes more volatile. Even at this pace of 2.8%, the outlook is favorable," he says.

Brazil has been pulling major investors. Sales adds that the Chinese play a major role in the economy of the country. "They are present in 70% of the power transmission business." China invests in other areas in Brazil as well. Aware that the BNDES, the Brazilian Development Bank, has been cutting back on the amount of credit offered, the Huayang Group and the Chinese government created an investment fund exclusively for Brazilians in the end of last year, where they made US$ 3 billion available at lower interest rates than the market. "Things will heat up in the next year," concludes Sales, "and, if household income increases, Brazil will take off."

Gráfico Pezco