The Week Ahead in Brazil #86

What is happening in Brazil?

1. Politics – President Jair Bolsonaro joined the PL on Tuesday (30). Bolsonaro was without a party for almost two years, since November 2019, when he left the PSL. The PL is the third largest caucus in the lower house, with 43 deputies, and the eighth largest in the Senate, with five senators.

The Senate approved, on Wednesday (1), the name of André Mendonça to occupy the post of Justice of the Federal Supreme Court (STF). There were 47 votes in favour, six beyond the minimum necessary, and 32 against. Earlier in the day, André Mendonça had his name approved by the Constitution and Justice Commission (CCJ), in a meeting that lasted about eight hours. The new Justice will take office on 16 December. (Senate Agency)

The Senate also approved other important proposals on Thursday (2). The first was the PEC of Precatórios (PEC 23/2021) was approved by 61 votes in favour, 10 against and 1 abstention. The PEC opens up fiscal space estimated at R$ 106 billion, part of which will be used to pay R$ 400 per month to beneficiaries of Auxílio Brasil, the new cash transfer programme that succeeds Bolsa Famíla. As it was modified in the Senate, the PEC returns to the lower house for analysis. (g1)

The second proposal approved was the provisional measure that creates the Auxilio Brasil with a change that, in practice, allows families to stay on the waiting list for the cash transfer programme, even if they meet the requirements to receive the benefit. The proposal will be submitted to the sanction of President Jair Bolsonaro. (Estadão)

2. Economy – Brazil’s GDP fell by 0.1% in the third quarter of 2021 in relation to the previous quarter, which had already registered a decline of 0.4%. This condition of two consecutive quarters of GDP retraction is called “technical recession”. The federal government stressed that the quality of the GDP is much better now.

The Brazilian trade balance registered a US$1.3 billion deficit in November. Trade flow (the sum of exports and imports) increased 37%: exports rose 23.2% and imports increased 53.1%. (Estadão)

Data from the National Household Sample Survey (PNAD) show a robust recovery in the formal labour market. According to the PNAD, the unemployment rate reached 12.6% in the quarter ended September (3Q21), a 1.6 percentage point drop in relation to the previous quarter.

In October, Brazil registered 253,083 new jobs with formal employment contracts. The information is from the New General Cadastre for Employed and Unemployed (Caged), and was released on Tuesday (30).

On Wednesday (8), the Central Bank’s Monetary Policy Council (Copom) is expected to announce its decision on the basic interest rate. The consensus in the financial market is for a 1.5 percentage point increase in the Selic rate, to 9.25% per annum. (Valor)

The IBGE will publish the IPCA variation in November on Friday (10).

3. Public administration – The Ministry of Mines and Energy (MME) promotes, between December 3 and 21, a series of auctions of oil and gas, energy generation and transmission of electricity. Called Energy Weeks, the expectation is to raise more than R$ 206.9 billion in private investments with the concessions.

The Ministry of Economy will make changes in the command of the Federal Revenue. José Tostes will be the tax attaché at the OECD in Paris and will be replaced by Julio Cesar Vieira. Carlos da Costa, who heads the Special Secretariat for Productivity, Employment and Competitiveness, will be appointed trade attaché in Washington. The Minister of Economy, Paulo Guedes, also intends to change the structure to unite Ipea and IBGE under the command of Adolfo Sachsida, current Secretary of Economic Policy.

How to read it

1. The trend in politics remains positive. There were no changes in the level of institutional conflict or in the rating of popular support for the government. The indicator that improved this week was the presidential coalition.

The coalition in Congress should continue to improve with Bolsonaro’s membership of the PL. The act should provide greater institutionality to the relations between the Executive and Legislative branches and reduce the space for possible conflicts. The political environment had already been giving positive signs, confirmed with the approval of the PEC of Precatórios and the approval of André Mendonça for the STF. The temperature will likely remain positive, favouring the approval of matters of interest to the Executive branch.

2. The trend for the economy has improved. Indicators of falling unemployment are important and should continue to improve in 4Q21. Although the SPE’s informative note on the 3Q21 GDP result suffered criticism for emphasizing the “quality of GDP” rather than the negative variation, I think the note was positive, reflecting structuring data regarding private investments.

3. Public management has returned to a neutral trend. The changes in the Ministry of Economy may delay the delivery of important projects. Even if the substitutes are members of the current team, there is always a learning curve and a re-accommodation of assistants, which is not the ideal situation.

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