Improved economy and anticipation of pension reform increase confidence in Brazil

The recent improvements in the Brazilian economy, brought about by the end of the recession and the expectation of economic reforms, in particular in the pension system, have increased the confidence of entrepreneurs, investors and consumers in relation to the country's direction.

Calculated by the Getulio Vargas Foundation (FGV), the Entrepreneur Confidence Index reached 98 points in January, a five-year high, while similar indices for industry, trade, services and consumers saw new increases as well. The Consumer Confidence Index, for example, increased for the fourth consecutive month in January to 96.6 points - the highest for the indicator since 2014.

Reform agenda

For Go Associados chief economist Eduardo Velho, the optimism with the Brazilian economy is based on the expectation that the federal government will be able to carry out reforms, chiefly among which pension reform, considered essential to rein in public spending and guarantee economic growth. "The confidence surveys are influenced by the persistence of low inflation and a government with a liberal, reformist agenda," he said in an interview with Brazil.Gov.

"Pension reform is the country's watershed. It is what will determine if Brazil will grow more, if interest rates will remain low and if corporate earnings will increase,” he points out. For him, the recent gains in the economy and the renewed optimism will be at risk if the reform agenda is not successfully carried out in congress.

Consolidation

The same scenario was also described by Haitong Bank economist Flávio Serrano, who sees pension reform as a key factor of stability and guarantee of economic growth in the future. "The approval of pension reform would generate an additional boost and certainly increase economic growth," he says.

Positive indicators

Buoyed by expectations regarding the economic reforms, Brazil continues to show good results in economic indicators. In 2018, domestic industry output grew 1.1%, marking two consecutive yearly increases, while the trade sector closed last year with sales up 2.3%, a five-year high.

At the same time, inflation remains under control and the Selic benchmark interest rate is at a historical low of 6.5% p.a. Reacting to the good moment in the economy, the financial market is even more optimistic. The benchmark index of the São Paulo Stock Exchange (B3) has once more reached unprecedented highs, surpassing the historic threshold of 98 thousand points again on Thursday (14) .