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São Paulo 2015 Blog: Panel on Brazil's Economic Outlook

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Ricardo Gandour (Image: Mario Miranda Filho)

Wednesday, May 27, 2015


  • Ilan Goldfajn, Chief Economist, Itaú Unibanco
  • Rafael Guedes, Managing Director, Fitch Ratings Brazil
  • Gustavo Loyola, Partner/Director, Tendências Consultoria
  • Ricardo Gandour, Editor-in-Chief, O Estadao de São Paulo (moderator)

Keeping in mind Brazil’s period of troubles with its economic situation, political instability, and corruption woes, the first panel of the São Paulo Latin American Cities Conference defined the government's recent strategies for economic recovery and their value. O Estado de S. Paulo’s Editor-in-Chief Ricardo Gandour, first moderator of the day, kickstarted the panel by asking Itaú Unibanco’s Chief Economist Ilan Goldfajn about the difference between adjustments and economic reforms.

Goldfajn broke down the federal government measures in blunt terms, explaining that “it’s important to separate what we’re doing today from what needs to be done over time.” He said that measures recently announced, such as fiscal adjustments and budget freezes, are “fixes” to counterbalance the government's spending in recent years. He listed five macroeconomic fixes happening concurrently: fiscal adjustments aimed to achieve 1.2 percent of primary surplus; “para-fiscal adjustments,” which he classified as government revenues and expenses in different social programs- balance of payments deficit; the end of price freezes provoking a spike in inflation; and a change in behavior of the country’s Central Bank, which now aims to decrease the inflation ceiling set by the government.

However, Goldfajn said these fixes are not reforms. “What adjustments do is to avoid crisis. What reforms do is to promote growth,” he explained. He said that Brazil is not in crisis, but that it is in a recession. “But once we get out of recession, we have to grow somehow,” he said. Goldfajn predicted the country should not be in recession for more than three years: Brazil won’t grow 4 percent as it did before, but it will get to a growth of around 2 percent in the near future. "To go beyond 2 percent, [the country] has to do more,” he said, including tax reforms, retirement reforms, and labor laws reforms. Looking at the lack of reforms during the period adjustments, the economist said the country’s economy may retract in 2015 by 1.5 percent, then start recovering at around 0.5 or 0.7 percent in the next year, then grow from then on.

Rafael Guedes from Fitch Ratings reinforced this perspective, explaining that, although Brazil used to compare with other countries in the agency’s BBB rating before, the country’s recent “growing-at-any-cost” approach made prior positive numbers deteriorate. He said that the three main problems are a lack of macroeconomic balance with low economic growth; fiscal aspects resulting in debt deterioration; and a troubled political scenario with a combative congress, low approval ratings for the president, and corruption scandals. “This impacts confidence of investors, business men, consumers, as well as unemployment and falling credit. All this leaves us questioning the future,” he explained.

Answering questions from the audience about which commodity would improve the economy, he answered “ethics”—getting applause from the audience.

Tendências Consultoria's Gustavo Loyola of talked about the challenges the private sector faces during this recovery period. He said: “Brazil was walking towards a cliff, but now it stopped looking in the right direction. The question is how we will keep walking.” Loyola said efforts should be focused on increasing productivity and public-private sector collaboration. He was critical of excessive rules imposed by government known as “the Brazil cost” and said the private sector cannot establish business strategies based on the public sector. 

Loyola also stressed the private sector has a political role in pushing the government to make sound decisions for economic growth. In addition, he said that sustainable growth depends on government decisions and the country’s will to reinsert itself in the global economy.

Watch the video (panel starts at 30'40"):

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