Brazil needs to resume optimism

por The Winners
Article writer by Daniel Maranhão, CEO of Grant Thornton in Brazil

Brazil, in its struggle to resume growth, after a severe economic crisis, which brought down the Gross Domestic Product (GDP) by about 7% in the sum of 2015 and 2016, lived until the end of 2019 and January of this year a great wave of optimism about the coming years for the local economy. After the Pension Reform approval and some microeconomic measures, everything indicated that Brazil would live a cycle of sustainable economic growth based on the liberal pragmatism of the current economic team, led by Minister Paulo Guedes.

To prove this, in January, Grant Thornton released its International Business Report (IBR) study, which measures the degree of business confidence in the next 12 months of the global economy, including Brazil. The fact is that 69% of Brazilian businessmen were optimistic about the future of the Brazilian economy. If we take into account South America, Brazil stands out even more among its peers, since Argentina, second place among the countries in the region, appears only in the 19th position among the 32 countries surveyed. Vietnam led the global ranking with 82% optimism, followed by Indonesia (78%), United Arab Emirates (77%), China (74%) and the United States (73%). 

The numbers showed that Brazil had jumped 11 positions in the global ranking of Grant Thornton, rising from 17th place, in the previous edition of the survey, to 6th place. That is, the train seemed to be on the tracks and accelerating. Another proof of the optimism with the Brazilian economy was the expected number of companies that intended to go public now in 2020, the number promised to be a record. Until March, B3 has hosted four openings, compared to just five in all 2019.

The expectation is that about 20 companies will follow the same track, given the registration of offers at SEC – Securities and Exchange Commission (CVM – Comissão de Valores Mobiliários). In addition, this year promised to be very important for merge and acquisitions in Brazil. So-called M&A operations are becoming more and re-current. Last year there was an increase of about 60% in relation to 2018 and, this year, the trend was to maintain or increase these percentages. 

However, it is necessary not to let the worldwide shock caused by the Coronavirus bury all the optimism that we had with the Brazilian economy. The peak of the confidence shake came when the World Health Organization (WHO) declared a global pandemic on March 11, with more than 118,000 cases worldwide and 4,291 deaths at that time. With the global stress taking over the financial markets on the five continents – B3, the Brazilian stock exchange, had already fallen from 117 thousand points in January to 74 thousand points on March 12, after the WHO statement – confidence in the future of Brazil took a hard hit. The shares of Brazilian companies melted and economists on duty began to redo the accounts for Brazilian GDP, with some of them dropping the forecasts to around 1% for 2020.

It is evident that confidence was affected worldwide, but for Brazil, it happened at the worst time, the fundamental moment when the country, with about 12 million unemployed, was rehearsing a strong recovery. In other words, for us, if the government does not act quickly – Executive, Legislative and Judiciary powers – there is a great chance that optimism will not survive and our economy will not take off in the way we expected until then.

Much of the optimism, which, until the advent of Covid-19 took hold in Brazil, was based on the prospects of good processing of both, tax and administrative reforms and the acceleration of measures to boost the economy, such as the approval of the Sanitation Regulatory Framework, with the potential to attract 700 billion Reais in investments by 2033, in addition to the privatizations planned, by the federal government, also with a potential to collect up to 450 billion Reais. It is now a mission of the federal government and the Congress to come together in a federative pact to move quickly with these measures in the search for accelerating the resumption of growth and the return of optimism.

In the current scenario, there is no room for power struggles, concerns over municipal elections or disproportionate egos. The fiscal adjustment does not leave many maneuvers for Brazil to react to the crisis with fiscal incentives, as it has done in previous crises, so the solution involves the approval of reforms and a positive agenda that runs at large and fast steps in Congress. Only in this way, confidence can resume.

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