Government measures create solid results for the economy

The Brazilian economy began a reversal towards economic growth in the last year. Some important measures adopted by the federal government were crucial in this process, and the country has begun to reap positive results in the political and economic scenarios.

In just over a year, Brazil's official inflation rate fell from 9.28% to 2.46% in year-over-year terms between August 2016 and August 2017. This means relief to consumers and more food on the table in households, as lower prices translate into a lower cost of living.

The fall in inflation was accompanied by the easing of interest rates by the Central Bank. The Selic, Brazil's basic interest rate, now free from inflationary pressures, fell from 14.25% p.a. in June last year to the current 8.25% p.a., the lowest since 2013.

In practice, this decline indicates more access to credit, since the Selic is used as a benchmark rate by all banks. The rate cuts can also lead to more household consumption and increases in overall economic activity, since cheaper credit makes it easier to invest in the country’s productive sector.

This improvement in indicators has led to increased confidence in the country and greater optimism in the financial market, especially with expectations that more economic reforms, including pension reform and a simplified tax code, will be approved in the coming months. This scenario, together with the recent good performance of State-owned enterprises such as Petrobras, has reflected in the stock market: the Ibovespa, main indicator of the São Paulo Stock Exchange, surpassed its historical high to hit 74,319 points this week.

Recession is in the past

All these positive indicators also mean the end of the recession, the return of jobs and the resumption of investments. The country went from a 3.6% decrease in Gross Domestic Product (GDP) in the second quarter of last year to a 0.3% advance in the same period of 2017.

Domestic industry has also given its first signs of a reaction: accumulated output is up 0.8%, a stark contrast to the -9.8% seen in the same period of last year.

Fighting unemployment

The labour market is beginning to respond to the course corrections made to the Brazilian economy. The unemployment rate went from 13.7% in the first three months of the year to 12.8% from May to July.

At the same time, business confidence has rekindled the labour market. The economy has so far this year added 103,200 new job positions, a welcome reversal from last year, in which over 623,500 jobs were lost.