Bolsonaro’s authoritative speech may slow down economy and extend the rise in inflation until 2022 – 09/08/2021 – Market

The political crisis and economic developments provoked by President Jair Bolsonaro’s (non-party) speech with authoritarian threats on September 7 are already affecting economists’ expectations for 2022.

The view is that the increase in uncertainty, translated this Wednesday (8) by the fall in the Stock Exchange and the rise in future interest rates and the dollar, already postpones investments, inhibits hiring, hinders the economic reform agenda and may extend the inflationary escalation for more time.

The president’s impeachment, however, is still seen by some analysts as a solution that could further deteriorate the economic scenario.

“It is a very serious economic situation and part of it is explained by this environment of uncertainty brought about by the president”, says William Baghdassarian, economist at Ibmec Brasília.

Baghdassarian states that the difference between a dollar below R$ 5.00 and the current level of over R$ 5.30 or a stock exchange above 140 thousand points and the current 113 thousand on the Ibovespa can be explained by the turbulent environment policy provoked by the speech of the President of the Republic.

“Many people think they are just empty words, but the president’s words have already impacted the economic environment. It seems like it’s just bravado and nothing’s going to happen, but it’s already happening.”

Rafaela Vitória, chief economist at Inter, says that the political issue brings more uncertainties in relation to the debate on the 2022 Budget and how to equate the issue of precatories and the government’s proposal to readjust and replace the Bolsa Família, issues that depend on the Congress.

She claims that the market movement on Wednesday reflects an adjustment in investment portfolios, but that, if this trend persists, especially in the case of exchange rates, it could result in a slightly higher inflation.

For the chief economist of Inter, the opening of an impeachment process, however, would bring even more uncertainty and more volatility in the market.

“A moderation in speeches can help us to have a more thoughtful discussion about the inspector. Many of these variables, interest and inflation via exchange, are the result of a greater perception of risk. A moderation of speeches between the Powers can reduce the market temperature”, he says.

“We were in a year of discussions about important reforms for the economy, tax and administrative reform. These political discussions end up interfering and generate more uncertainty for the economic scenario in 2022. I think we will resume the discussion of reforms only in 2023.”

Leonardo Milane, partner and economist at VLG Investimentos, says that the president’s speeches on Tuesday (7) contributed to the deterioration of economic agents’ confidence even further.

“It was a very bad signal, with the speech and the threats that he [Bolsonaro] did. The entrepreneur ends up shelving projects, postponing investments, hiring. Trust is everything in the economic environment, and it seems that re-election plans are overlapping everyone’s common interests,” he says.

Milane says that the environment also creates a negative spiral for high-risk/high-return domestic investment, such as equities, and that money from the stock exchange and multimarket funds goes to fixed income.

Gustavo Cruz, strategist at RB Investimentos, says that the time is now to monitor the position of the Senate and various parties that are discussing the adhesion to an impeachment request, to see if the political climate can bring even more uncertainty. The speech of the president of the Chamber, Arthur Lira (PL-AL), still signals support for the government’s projects.

“Now is not the time to make a change of scenery, but I am very attentive to the posture of the [presidente do Senado] Rodrigo Pacheco [DEM-MG], to see if he will put himself in opposition to the government, as this would greatly hinder the agenda that we here in the financial market are hoping to advance.”