2015: Levy honeymoon will soon be over for Brazilian assets, recession coming

Consensus said:

Markets up on confidence in new Finance Minister Joaquim Levy. 

We said:

We think his honeymoon with the markets will end soon for the following reasons:

  • President Rousseff has become a lame duck even before her second term has really started.
  • Levy has successfully harvested the low-hanging fruit of fiscal reform – namely, tax hikes that do not require Congressional action; but these actions fall short of what is required to reach his target of 1.2 per cent of GDP 2015 primary surplus.
  • The full impact of the fiscal “bombs” and other creative accounting measures from Dilma’s first term are still not quantified.
  • Extraordinary fiscal assistance will be required this year to prevent a precipitous collapse of infrastructure spending on existing projects and the Rio 2016 Olympics.
  • Although many analysts have downgraded their forecasts and are now calling for a small decline in GDP growth this year, we think the consensus is still too optimistic. We revise down our earlier -1 to 0 per cent GDP forecast to -1 to -2 per cent for 2015. (Brazil 30 January 2015)


BOVESPO rose from 46,908 to 57,479 on 30th April before falling back to 43,200 on 21st Dec 2015 when Levy left office. Equities finally bottomed out at 37,497 by 28th Jan 2016. Worst recession for 25 years in 2016-2017.


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