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Even
though the January result cannot be interpreted as an indication of trade
flows for the rest of the year, the figure was well above market
expectations. Panellists express concerns about the negative impact
on exports that continued weakness of international commodity prices could
have on the trade balance. In addition, Brazilian export goods producers
are shifting their focus from the international to the domestic market and
rising oil prices could further raise the value of imports.
Currency
weakens. Market concerns about the deterioration in the
trade balance led to substantial weakening of the Real to the US$.
In January the Real depreciated 0.6% to the US$ and continued its decline
in February losing another 1.3%. On 7 February the Real broke
through the US$ 2.00 range for the first time since March 1999 but
stabilized again in the following days. Market uneasiness has been
driven primarily by concerns about the possible growth constraint that the
rising trade deficit could pose, as observers increasingly expect the
strong import expansion to forestall further interest rate cuts by the
Central Bank. The Consensus expects the currency to depreciate 3.8%
this year, with the real reaching 2.03 to the US$ by year-end.
Political
coalition under pressure. The Chamber of Deputies and the
Senate are scheduled to elect new leadership on 14 February. Leaders
of Cardoso’s governing key coalition parties, the PFL and PMDB,
currently hold the top seats in both the Senate and the Chamber, which are
also considered the highest-ranking political offices respectively after
the presidency. Outgoing Senate president Antonio Carlos Magalhaes
of the PFL is unlikely to be able to avert the election of a PMDB
candidate, while in the Chamber the PFL candidate is expected to lose out
to a small party candidate with the endorsement of existing president
Michel Temer of the PMDB. The potential PFL loss in both the Chamber
of Deputies and the Senate, where it holds strong positions, may put
pressure on the coalition and in the event of a break-up could pose a
threat to the government’s economic agenda.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Brazil. For more details please click here.
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