BrazilWorks Economic Recovery Dashboard by Mark Langevin

BrazilWorks introduces our Economic Recovery Dashboard to report the monthly and quarterly trends among a select group of leading and lagging indicators. Indicators such as industrial activity, construction input production and retail sales measure activity in key economic activities that reflect increasing consumer demand for Brazilian made products. We expect such indicators to spell the first stages of economic recovery. As you can see from the IBOVESPA (São Paulo Stock Market Exchange), market traders have bet on Brazil's recovery throughout 2016, but this is not enough. Also, the industrial productivity and capital goods imports indicators are strong measures of the degree to which Brazilian industry is investing in international competitiveness, a factor that will determine the depth of national economic recovery and its sustainability over time. These need to increase over time and throughout the recovery.

The leading indicators also includes the Central Bank's aggregate index of economic activity that should move in accordance with the other leading variables, it should demonstrate the validity of the leading and lagging indicators over time. Let's watch this index closely.

The lagging indicators, including average wages and formal employment, are key to understanding the depth of the recovery and whether it is accompanied by a structural transformation that leads to greater formal employment and productivity, or whether it spells greater employment precariousness and a hollowing out of the economy's capacity to generate demand-similar to the effects in the USA where productivity increases while wages flatten.

For October 2016 it appears that there are signs of recovery, but distant and elusive. The IBOVESPA leading indicator shows investor optimism, probably due to the impeachment of former President Dilma Rousseff from April to August of 2016, but this could be tenuous if there are additional economic or political setbacks. The more churning leading indicators, industrial activity, retail sales, and construction input production also demonstrate a positive, albeit tenuous direction. However, the more transformative indicators of industrial productivity and capital goods imports remain in the red, an alert that the economy is not yet prepared for a sustainable and deep economic recovery.

Brazilian policymakers are still shaken or celebrating from the impeachment process, the municipal elections, and the Lava Jato corruption investigations. However, Temer's government and congressional coalition seem committed to restoring fiscal stability at any cost; and at this moment it would seem plausible to expect the Brazilian Congress to comply with measures to cut the budget deficit. This outcome coupled with falling inflation measures (including Petrobras' recent decision to cut transportation fuel prices) could lead to a reduction in interest rates that would contribute to economic recovery (but be matched by falling government expenditures that have a recessionary effect). The objective is to lower the real structural interest rates over time and keep them within a competitive band so that Brazilians can invest in their economy rather than depending on government or foreign direct investment. We need to monitor progress in this area. If the Brazilian private sector gets back to investing (and move away from dependence on financing government debt) in the national economy, then expect productivity and the capital goods market to increase.

The question is, what can President Temer do, with Congressional support, to ease private sector investment in productivity increasing activities in the short to medium terms?

 

Heaven and Hell: Rio de Janeiro Transcends the Sum of its Parts by Mark Langevin

Nobody can blame the chorus of media reports slamming Rio de Janeiro as the host of the 2016 Summer Olympic Games. Everybody who knows Brazil and loves Rio saw it coming. Rio de Janeiro is more than a mega-metropolis of six and half million residents crammed between divine escarpments and the polluted Guanabara Bay.  Heaven and hell, Brazil’s hallmark city transcends the sum of its parts. As Tom Jobim sang in his classic hit Wave,

“Let me tell what eyes just can’t see, things that only the heart understands.

What is fundamental is love.”

People who live Rio love it, even if they have to step over dead bodies washed up on Copacabana beach or pay the cascading costs of kick back corruption that pervades Brazil’s infrastructure construction. To love Rio is to get beyond the obvious pockmarks and wicked stench that punctuate life in the Cidade Maravilhosa, but without looking away.  The front page does not surprise those that love Rio.

Simon Romero of the New York Times knows Brazil well, but could not resist the temptation to seize the moment to pitch anger and anxiety as the best frame for Rio and the Summer Olympics.  He quotes Ana Caroline Joia de Souza who sells sweets on the streets of Rio,

“Just thinking of the Olympics leaves me revolted…  Our politicians want to trick the world into thinking things are great here. Well, let the foreigners see for themselves the filth we live in, the money our leaders steal.”

Most Brazilians share Ana Caroline’s anger, but not all for the same reasons.

Brazil is mired in a deep recession and an even deeper political crisis that has left the country bleeding out from the sharp blades of corruption, pervasive inequality, and the breach between swelling expectations and the global downturn. Step into any boteco (neighborhood bar) in Rio and you can listen to the rage, you can hear the eco of Ana Caroline’s words, and if you pay attention, you can feel the beat of a collective soul searching.  What Romero probably understands, but many of those reporting from Rio for the first time do not, is that Cariocas are playing the media for their own purposes, whether it is throwing mud at the Mayor, scapegoating by presidential impeachment, or clamoring for an end to corruption. Brazilians are learning to play off the international limelight to advance their own political or policy aspirations and the international media is more than willing to turn up the loudspeaker.

It is loud, but it does not explain why Cariocas are passionately in love with their city.  The tactical alliance between novice column inch contributors and Brazilians seizing the moment is momentary and incomplete. It distracts from the bigger question; why do people, Brazilians and foreigners alike flock to Rio?

Romero should have asked Ana Caroline where she was born because most street vendors in Rio come from the Northeast where grinding poverty pushes many to seek opportunity elsewhere.  More to the point, those that come to Rio are not eager to leave anytime soon. The more interesting stories will be after the Olympics have come and gone.  There at the boteco will be dozens, maybe hundreds of North Americans, Germans, Nigerians, even Argentines making plans to make the move to Rio, or at least promising to come back real soon. Why?

 

They feel something special in Rio, a powerful force that does not blind, but balances against the stench of Rio’s port, the brick by brick poverty of the never ending favela of Maré, and the shots fired between military police and drug gangs just steps away from the glitz of Copacabana. Something that only the heart understands and cannot be read in between the lines. Everybody loves Rio, it's a global social movement, and the Olympic Games are simply foreplay.