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Brazil stocks cruise to new high

16.01.2018

It’s not just Wall Street that is seeing records being shattered on Tuesday.

Brazilian equities also climbed to a new all-time high as investors ramp up bets that Latin America’s largest economy — despite its political dysfunction and endless corruption scandals — would get a lift from stronger US and global economic growth.

The country’s benchmark Bovespa stock index gained 0.6 per cent to 80,246.33, taking its gains since mid-November to over 13 per cent. The index has more than doubled since hitting a seven-year low in early 2016.

“Brazil is still a market that investors love to love,” said Geoff Dennis, head of global emerging markets equity strategy at UBS. “When markets move, they tend to buy Brazil.”

Although Brazil is still only slowly emerging from its deepest recession on record, a weaker dollar — combined with signs that the Federal Reserve will continue to take a slow and steady approach to interest rate rises and a robust outlook for the global economy — has prompted investors to return to a risk-on mode.

The rebound in oil and commodity prices have further helped anchor sentiments. Petrobras, the state-owned oil company, and mining giant Vale are among the top performers on the Bovespa over the past three months, gaining 12.6 per cent and 27.6 per cent respectively.

How long the rally can last is anyone’s guess. With the country set to go to the polls to elect a new president in October, political risks could inject fresh volatility into the markets once again.

“Presidential elections will be in the spotlight this year,” said analysts at Bank of America Merrill Lynch. “Reforms are key to correct the still concerning fiscal situation and improve the overall economic outlook, in our view. A virtuous cycle on the economic front could result in higher growth, low inflation, low interest rate and debt sustainability. Policy mismanagement after the elections could lead to the opposite so the 2018 presidential elections could have a binary outcome.”

Source: Financial Times

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It’s not just Wall Street that is seeing records being shattered on Tuesday. Brazilian equities also climbed to a new all-time high as investors ramp up bets that Latin America’s largest economy — despite its political dysfunction and endless corruption scandals — would get a lift from stronger US and global economic growth. The country’s […]

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Surging revenues ease fiscal concerns

10.01.2018

Preliminary December data on federally administered revenues left officials euphoric. “They came in 4.5% higher than even government estimates for the month,” says a high-ranking economic official. “It is already mirroring economic growth.”

The final result will be disclosed later in the month and could be even better since officials are still adding everything up, the source says. The government had hoped to collect R$72 billion in December from federal taxes (excluding Social Security revenues), net of tax breaks and other credits, according to the financial and budget planning decree.

Outperforming revenues are the primary explanation for last year’s significant drop of the primary deficit of the central government (Treasury, Central Bank, and Social Security), which fell to less than R$130 billion. Officials still don’t have the final figure. The government had targeted a deficit of R$159 billion.

Last month’s revenue results reinforce expectations among the economic team that tax receipts will enjoy significant real growth compared to 2017, helping attain the fiscal target. “We are not aiming for that, but the deficit probably will be lower than the R$159 billion forecast,” the source says.

Surging tax receipts in the second half of 2017, helped by a new debt-settlement scheme dubbed Special Program of Tax Recovery or PERT, allowed something that seemed impossible early in the year. Revenues ended the year with real growth, albeit a small one, from 2016, when a program allowing Brazilians to regularize their unreported foreign holdings netted R$46.8 billion.

The government is convinced it can reach the fiscal target easily despite failing last year to pass higher taxes on single-investor funds, which was supposed to yield R$6 billion, and a potential shortfall of R$12 billion from not privatizing Eletrobras this year. “We will not have problems on the revenue side,” the official says.

Source: Valor International

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Preliminary December data on federally administered revenues left officials euphoric. “They came in 4.5% higher than even government estimates for the month,” says a high-ranking economic official. “It is already mirroring economic growth.” The final result will be disclosed later in the month and could be even better since officials are still adding everything up, […]

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Real-estate developers see a brighter 2018

15.12.2017

Real-estate developers will end 2017 with more launches and sales than last year, but earnings of several companies are still under pressure due to weak operating performance in recent years. Considered a year of recovery for the sector, 2017 was also marked by cash generation among many companies and by creditors’ approval of judicial recovery plans of PDG Realty and Viver Incorporadora. The market expects the operating improvement to consolidate next year, but reflected only in the 2019 balance sheets.

“This year was of transition and adjustment. In 2018 there will be effective cash generation and, due to the industry’s cycle, earnings will start recovering by 2019,” says Santander’s real-estate analyst, Renan Manda.

Developers avoid setting targets for launches in 2018, but some of them such as EZTec and Tenda expect raising projected sales (VGV). Until September, the launch of publicly traded companies increased 28%, and net sales rose 25%, according to Valor data. Seasonally, the fourth quarter is the most heated for the industry.

Sales started to show improvement in the second quarter, Mr. Manda says. Most developers were able to generate cash in the third quarter as the number of deliveries fell, pushing down contract cancellations. Cash generation tends to keep growing in 2018 and help cut debts.

“Inventories have been falling every quarter. Sales are starting to pick up,” says another industry analyst, although he also warned that prices probably would stay flat next year because companies reduced launches faster than they cut inventories. Mr. Manda, with Santander, also expects prices to keep stable or follow inflation. “I don’t expect any price pressure,” he says.

Next year will present a more favorable environment for the middle-class and high-middle-class income ranges, and also for developers working with government housing program Minha Casa, Minha Vida, says Luiz Mauricio Garcia, a senior real-estate analyst with Bradesco BBI. But the segments will recover “from different levels.”

“The low-income segment has a better supply-demand balance,” says the Bradesco BBI analyst. A new expansion will only occur when employment indicators improve. “Low income concentrates nearly 80% of demand,” Mr. Garcia says.

Developers focusing on middle-class and luxury properties will benefit from macroeconomic shifts and more readily available mortgages. “Net sales increased as cancellations fell. Gross sales also tend to improve,” says the Bradesco BBI analyst, who stresses that they still are one of the most challenging markets.

Developers are already recovering in São Paulo but not in Rio de Janeiro’s market, says Brasil Brokers president Claudio Hermolin. “Launches sold faster in São Paulo this year than in 2015 and 2016, but were still slow in Rio,” he says. The executive points out São Paulo properties are still selling slower than in 2013 and 2014.

Flávio Amary, president of developer trade group Secovi-SP, expects launches and sales to rise in the city next year but declines to provide a specific forecast. “The scenario is pointing to a better market,” he says. Launches of residential properties in São Paulo could rise between 5% and 10% this year, Mr. Amary says, with sales increasing from 20% to 25%. Early this year, Secovi-SP estimated growth between 5% and 10% for both indicators in 2017.

For Rubens Menin, president of the Brazilian Association of Real Estate Developers (Abrainc), the industry’s biggest challenge now is housing credit. “We hope LIGs [covered bonds] take off in 2018. The securities were regulated in August, and the Central Bank is considering the rules,” Mr. Menin says.

Abrainc’s president believes LIGs will complement the Workers’ Severance Fund (FGTS) as funding sources for the industry. “LIGs could surpass R$200 billion in three to four years,” Mr. Menin says. LIGs are covered by both the lender who issued them and a property portfolio big enough to back the entire issue.

According to Gilberto Abreu, president of the Brazilian Association of Mortgage and Savings Entities (Abecip), mortgages financed by savings accounts will rise 15% in 2018. Abecip estimates that mortgages financed by savings funds will total R$45 billion in 2017, from R$47 billion last year. When FGTS loans are taken into account, the overall new mortgage balance this year is R$117 billion, from R$116 billion in 2016.

“Banks will grow more interested in mortgages over the upcoming months but nothing compared to the peak in 2014, says Santander’s Mr. Manda.

Ricardo Ribeiro, vice-president of Direcional Engenharia, expects state-owned lender Caixa Econômica Federal to set the tone of 2018. “If Caixa is unable to keep lending to mid-standard developers, it will get very tough,” the executive says. He is also concerned about potential lending restrictions in Minha Casa, Minha Vida to families earning more than R$4,000 a month.

Caixa is the largest mortgage lender in Brazil and needs to adjust its capital ratio to Basel III rules. The Senate passed with a few changes a bill allowing FGTS to help capitalize the bank. The proposal still needs to pass the Chamber of Deputies again and would let Caixa swap about R$10 billion in 15-year bonds issued to FGTS with perpetual notes. Mr. Ribeiro says the mid-income sector faces good prospects if the issue is solved and savings accounts start getting net inflows again.

Source: Valor International

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Real-estate developers will end 2017 with more launches and sales than last year, but earnings of several companies are still under pressure due to weak operating performance in recent years. Considered a year of recovery for the sector, 2017 was also marked by cash generation among many companies and by creditors’ approval of judicial recovery […]

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MRV will invest R$50bn in 10 years to become world’s number 2

13.12.2017

MRV Engenharia announced a R$50 billion investment in ten years, during which it estimates to build 500,000 units. If the target is materialized in the next decade, MRV will become the world’s second largest real estate company. Currently, the Minas Gerais-based developer is in third place behind China Vanke and US group D. Horton. MRV projects that in ten years it will create 94,600 jobs in the period. For 2018, the company estimates launches and gross sales of 50,000 units. Considering the price of R$150,000 per unit, projected and actual sales will total R$7.5 billion next year, although the figure is not a target, the company says.

Source: Valor International

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MRV Engenharia announced a R$50 billion investment in ten years, during which it estimates to build 500,000 units. If the target is materialized in the next decade, MRV will become the world’s second largest real estate company. Currently, the Minas Gerais-based developer is in third place behind China Vanke and US group D. Horton. MRV […]

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Brazil Is Turning Its Fiascoes Into a Much-Needed Win

12.12.2017

Latin America’s largest economy was used to corruption and inflation. How will it handle good news?

Well, here are some things you don’t see every day. A few headlines in Brazil are aligning to show Latin America’s largest economy a path back toward confidence — and, just possibly, to restore some of the world’s confidence in democracy.

The first unusual circumstance is that Brazil’s central bank governor will almost certainly have to write a letter to the finance ministry explaining why inflation is ending the year below the 3 percent floor of the target range. Too-high price increases have traditionally been Latin America’s foil. That’s always a “dog bites man” story, hardly worth mentioning. What’s happening now is news, akin to “man bites dog.”

The second circumstance is that in cutting the benchmark interest rate to 7 percent last week, the central bank brought its rate in line with that of the national development bank BNDES. The latter has been used by corporations to borrow at below-market rates, often cosseting firms that are tight with the government. It’s led to big distortions and poor investment decisions. BNDES is like Godzilla trampling over the corporate decision-making terrain.

The third is how microscopic approval ratings are encouraging President Michel Temer’s administration and Brazil’s congress to cooperate to pass constitutional amendments designed to limit spending and overhaul the state pension system. Ordinarily, an approval rating in the low single digits would have politicians running away from reform. But so great is public disgust at graft specifically and the political class generally that Brasilia’s burghers are desperately trying to ward off pitchforks — and that means doing something. In this, they are aided by Temer’s decision not to run in next year’s elections.

Happily, the rare coalescence of these individually significant events is making a difference to Brazil’s economy, which had been contending with its worst recession ever and a crippling lack of confidence in policy making. Temer, who almost had to resign himself, is only president because Dilma Rousseff was impeached last year.

As my colleague David Biller has chronicled, things are now starting to look up: Consumption grew last quarter and investment rebounded. While gross domestic product increased 0.1 percent from the second quarter, what’s striking is the mix. The 1.6 percent gain in investment was the first positive reading in four years. Private-sector economists are marking up their forecasts, with the median estimate for GDP next year now raised to 2.6 percent, according to a weekly survey by the central bank published Monday.

It might be tempting to attribute at least some of this relative upswing to the broadening global bounce. After all, the country is a major commodity exporter. Tempting, but wide of the mark. Brazil is relatively insulated from global winds. For example, GDP fell just 0.1 percent in 2009 while many economies were almost in free fall. Similarly, until very recently the post-financial-crisis global expansion just seemed to pass it by.

Now the cliched green shoots seem to be shooting in Brazil — precisely because things got so bad. Whatever the reason, we should all applaud the progress, especially in a part of the world where militaries ruled so recently. It’s important these days for democracies to show they can function and get things done.

By Daniel Moss

Source: Bloomberg

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Latin America’s largest economy was used to corruption and inflation. How will it handle good news? Well, here are some things you don’t see every day. A few headlines in Brazil are aligning to show Latin America’s largest economy a path back toward confidence — and, just possibly, to restore some of the world’s confidence […]

Read more

Meet the Optimists Forecasting Brazil Will Bounce Back, And Fast

22.11.2017

No one’s popping the champagne just yet to toast the end of Brazil’s worst-ever recession, but some seasoned forecasters see cause for optimism in 2018, predicting the fastest expansion in seven years.

Three senior economists — a top Brazil forecaster in 2016, a University of Chicago-trained Ph.D, and an academic and IMF consultant — expect Brazil to grow on average 3.9 percent in 2018, a level not seen since 2011.

Marcelle Chauvet sits on a committee that tracks Brazil’s economic cycles at the Getulio Vargas Foundation, a prominent business school and think tank. She predicts 3.5 percent growth in 2018, a full percentage point above the consensus estimate from economists the central bank surveys. Traditional models tend to be overly optimistic heading into recession and overly pessimistic when emerging because they rely excessively on short-term cyclical data rather than longer term trends, she said.

“Most people are wrong when forecasting growth right at the end of the recession,” said Chauvet, a University of California economics professor, who has advised the International Monetary Fund and the Brazilian central bank.

With some 13 million unemployed after the worst downturn on record in 2015 and 2016, the strength of the recovery will play a major role in the 2018 presidential election. Years of recession and corruption scandal have fueled disillusionment with traditional politicians. And now, extremist candidates on the left and right will potentially vie with more market-friendly centrists for the country’s top job.

According to official data, growth resumed in the first three months of 2017 after eight quarters of contraction. For next year the median forecast from 100 economists surveyed by the central bank is 2.5 percent. The government’s outlook is even lower, at 2 percent.

By far the highest growth projected among the 34 economists surveyed by Bloomberg comes from Helcio Takeda, partner and director of economic research at Pezco Economics. He forecasts 3.8 percent growth in 2018 and expects the government’s economic agenda to advance, including approval of some type of pension reform.

Among central bank surveys in 2016 Takeda ranked first in accuracy for his long-term forecasts of the exchange rate and benchmark interest rate. The bank does not rank economists’ GDP predictions. Paradoxically corruption scandals and political noise this year have led him to reinforce his bets for 2018.

“We saw the political impact wasn’t so strong and started having the view that it isn’t just the president who’s the guarantor of the economic agenda,’’ Takeda said by phone. “Consider also that the base of comparison, 2017, will still be rather weak.’’

The most optimistic on Brazil’s growth next year is Paulo Rabello de Castro, president of BNDES state development bank, who has a doctorate in economics from the University of Chicago. His argument is that increased public lending will help fuel demand and investments. The bank plans to increase financing by 27 percent next year to nearly 100 billion reais ($30bn), he said.

“I think it will be possible to reach some 4 percent, or 4.5 percent, because statistically we’re coming from the bottom of the barrel,’’ Rabello told reporters in Rio de Janeiro. “We have a certain obligation to try, and we’re going to try.”

In the three years subsequent to the 1981-1983 downturn, Brazil averaged 6.9 percent growth, according to the government’s economic research institute.

“If you look at past data, recovery tends to be much higher than potential growth. Not immediately, but a couple quarters later, almost trying to catch up for whatever happened during the recession,” Chauvet said. “It’s kind of overdue.”

Source: Bloomberg

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No one’s popping the champagne just yet to toast the end of Brazil’s worst-ever recession, but some seasoned forecasters see cause for optimism in 2018, predicting the fastest expansion in seven years. Three senior economists — a top Brazil forecaster in 2016, a University of Chicago-trained Ph.D, and an academic and IMF consultant — expect […]

Read more

Moby Self Storage arrives in São Paulo

09.11.2017

Moby will begin self storage operation at its first facility in Brazil’s largest city, São Paulo. Located with 70 metre frontage on one of the world’s busiest roads, “Marginal”, Moby’s new store is 100 metres long.

Moby’s will be working hard to bring this severely undersupplied service to customers nationwide over the coming years, with 3 more facilities currently in development.

Address for Moby’s new facility in São Paulo:
Avenida Embaixador Macedo Soares, 3955
Vila Ribeiro de Barros
05095-035, São Paulo – SP

Find more at:
www.mobystorage.com.br

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Moby will begin self storage operation at its first facility in Brazil’s largest city, São Paulo. Located with 70 metre frontage on one of the world’s busiest roads, “Marginal”, Moby’s new store is 100 metres long. Moby’s will be working hard to bring this severely undersupplied service to customers nationwide over the coming years, with […]

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Brazil Cuts Key Rate to 7.5% and Indicates Slower Easing

25.10.2017

Brazil lowered borrowing costs by 75 basis points, and signaled it will slow the pace of monetary easing further as inflation bottoms out and the economy gains steam.

The bank’s board, led by President Ilan Goldfajn, cut the benchmark Selic rate to 7.5 percent Wednesday following four straight full-percentage point reductions as expected by all 33 analysts surveyed by Bloomberg. Policy makers have lowered borrowing costs by 675 basis points in the past year.

“The Committee judges that convergence of inflation to the 4.5 percent target over the relevant horizon for the conduct of monetary policy, which includes 2018 and 2019, is compatible with the monetary easing process,” the central bank board wrote in a statement accompanying the decision. At this time, it views a moderate reduction of the pace of easing as appropriate at its next meeting, the board said.

The decision suggests that Brazil’s monetary authority is now taking a prudent approach in the wake of its most aggressive easing cycle in a decade. With inflation expected to accelerate back to the official target and economic growth picking up, the central bank indicated it will likely reduce borrowing costs by 50 basis points at its next meeting in December, according to Andre Perfeito, chief economist at Gradual Cctvm.

“They are making it clear where they are going and what the next steps are,” Perfeito said in an interview. “The central bank is being rather cautious.”

Brazil’s annual inflation as measured by the IPCA index accelerated to 2.54 percent in September, and Goldfajn has said it will gradually reach the official 4.50 percent target. Meanwhile, analysts expect the economy to grow 2.5 percent next year, the fastest pace since 2013, as the labor market recovers and purchasing power bounces back.

Following the rate decision, Finance Minister Henrique Meirelles told reporters after an event in Brasilia that Brazil’s economic growth could be above 2.5 percent next year.

Questions about the government’s ability to approve a package of austerity reforms also cloud the outlook on inflation. President Michel Temer has been using much of his political capital, as well as generous concessions to government allies, in exchange for votes to fight a second set of corruption charges in the lower house of Congress.

Source: Bloomberg

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Brazil lowered borrowing costs by 75 basis points, and signaled it will slow the pace of monetary easing further as inflation bottoms out and the economy gains steam. The bank’s board, led by President Ilan Goldfajn, cut the benchmark Selic rate to 7.5 percent Wednesday following four straight full-percentage point reductions as expected by all […]

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Lower interest rates help save R$80bn

19.10.2017

Many have written about the surprising speed with which Brazil’s inflation fell. When President Michel Temer was sworn into office in late August 2016, after the impeachment of ex-president Dilma Rousseff, the accumulated 12-month Extended Consumer Price Index (IPCA) was 8.97%. By September this year 12-month inflation had already fallen to 2.54%.

This steep drop in inflation allowed the Central Bank to cut the Selic base rate significantly. What few people are aware of the effect of lower rates on public accounts.

The Selic’s decline to 8.25% in August from 14.25% in September 2016 resulted in savings of R$79.6bn for federal coffers, according to estimates by Senate body Independent Fiscal Institution (IFI). The body’s managing director, Felipe Salto, told Valor the overall effects of a steep drop in Selic still haven’t appeared fully in official statistics.

The reason is that changes to the base rate happen over a prolonged period and their effect is delayed more or less depending on the type of government bond. For each percentage point of reduction in the Selic, Mr. Salto estimates a R$40 billion relief in public accounts in annualized terms. Meaning one year after the rate dropped. The overall savings, therefore, will be even bigger.

The IFI estimate only took into consideration the rate decline, as it aimed to measure the impact of a lower Selic on public accounts. But as Mr. Salto noted, other factors evidently affect interest costs positively or negatively, like the losses or profits of Central Bank transactions with foreign-exchange swaps, the lower inflation (due to the effect on bonds linked to price indices) and the higher share of Treasury Financial Bills (LFTs) on the overall debt, which rose nearly six percentage points recently.

IFI simulations show that if Selic hadn’t dropped and if all other factors remained constant, today the gross debt would be around 1.3 percentage point of GDP higher than it is now. The last Central Bank data on the gross public debt, which shows it at 73.7% of GDP, comes from August 2017.

The Central Bank’s monetary policy, therefore, provided a great help to the fiscal adjustment. But this trajectory needs to be reviewed with caution because nothing ensures that rates will stay low forever. The Central Bank recognizes that its monetary policy is geared toward stimulating the economy.

It also should be noted that the main guidance of the public debt’s trajectory is primary results. The federal government has been posting primary deficits since 2014. And the deficits are expected to continue until at least 2021.

Low rates, with the consequent reduction in debt costs, allow the government to gain time to adopt the necessary measures to balance public accounts. Furthermore, if real rates are kept below 4% a year from now on, as everything indicates is quite likely, the primary surplus needed to stabilize the public debt-to-GDP ratio will be lower than initially imagined.

In a recent speech at business school FGV in São Paulo, economist Marcos Mendes, head of the special advisory body to the finance minister, issued several forecasts on the combination of rates, growth and primary surplus toward stabilizing the debt. For a debt of 74.5% of GDP, real rates of 4% a year and GDP growth of 3%, a primary surplus of only 0.7% of GDP would do the job.

In the meantime, the Center for Economic-Fiscal Affairs of the Budget Consultancy of the Chamber of Deputies sees the fiscal outlook this year improving. Until a short while ago, there was a high level of uncertainty on the possibility of the government attaining the expanded fiscal target for this year, which includes a primary deficit of R$159 billion. The doubts were mainly related to the ability to obtain the non-recurrent revenues that had been included.

They include revenue from the re-auctioning of hydropower dams formerly controlled by Cemig that had not been renewed. The auction took place and raised R$12.13 billion, R$1.07 billion higher than government forecasts. The government also raised over R$3 billion beyond expectations auctioning petroleum fields.

The surprise this time is the new Refis, as the installment plan for tax debts under favorable terms is called. Officially known as the Special Program of Tax Regularization, it has raised nearly R$8 billion in the year to September. The Chamber center believes the government’s initial estimate of R$13 billion in non-recurrent revenues will be reached and perhaps surpassed. Officials still plan to auction eight pre-salt fields this year which carry expectations of high premiums. The center already started recommending that the government postpone some revenues to help balance accounts in 2018.

Source: Valor International

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Many have written about the surprising speed with which Brazil’s inflation fell. When President Michel Temer was sworn into office in late August 2016, after the impeachment of ex-president Dilma Rousseff, the accumulated 12-month Extended Consumer Price Index (IPCA) was 8.97%. By September this year 12-month inflation had already fallen to 2.54%. This steep drop […]

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The Prolifico Report (October 2017) – Brazil: the recession is over!

12.10.2017

Although the storm clouds surrounding the political establishment in Brazil continue to cast their shadow, there is finally some light breaking through and Brazil is now officially in recovery. Two consecutive quarters of positive GDP growth, falling unemployment, low inflation and falling interest rates, all bode for brighter times ahead.

President Temer has faced two criminal charges over the last three months and, although it was unclear whether he would be able to survive the first one, it is now likely that he will survive the second charge. His position has been reinforced over recent weeks, helped by some mistakes made by the prosecution and also by the positive economic figures recently announced.

Investors’ view on Brazil is now becoming positive, with Brazil’s stock market reaching all-time highs in September and October. Forecasts are also improving. David Beker, economist with Bank of America Merrill Lynch, has doubled his growth forecast for next year from 1.5% to 3.0%.

In the real estate market, the Self Storage sector continues to enjoy the media spotlight, as another major Brazilian magazine highlighted its growth during the recent recession. Lastly, the co-working space in Brazil has lift-off, with the arrival of the USD 20bn start-up WeWork in Brazil.

If you would like to read more – access the full report here.

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Although the storm clouds surrounding the political establishment in Brazil continue to cast their shadow, there is finally some light breaking through and Brazil is now officially in recovery. Two consecutive quarters of positive GDP growth, falling unemployment, low inflation and falling interest rates, all bode for brighter times ahead. President Temer has faced two […]

Read more