Brazil: Economy sunk in 2016, no improvement in sight yet  - Wells Fargo

Analysts from Wells Fargo, took note that the Brazilian economy contracted sharply during 2016 for the second year in a row. They warned Q4 data shows no signs of improvement. 

Key Quotes: 

“The Brazilian economy sunk 3.6 percent in 2016 after a 3.8 percent decline in the previous year, according to the IBGE, the country’s statistical institute”.

“From the demand side and on a year-earlier basis in the fourth quarter, the conditions of the economy were even more concerning. Every sector posted a decline in activity, led by a drop in exports of goods and services of 7.6 percent, as the recent appreciation of the currency seems to have affected the only economic sector that grew during the first three quarters of 2016. On the positive side, the decline in real personal consumption expenditures was “only” 2.9 percent, which shows an improvement from previous quarters.”

“The overall result for full-year 2016 fell in line with our expectation of a 3.5 percent decrease, with actual GDP printing a 3.6 percent decline. However, we were surprised by the weakness observed in the fourth quarter of 2016 as there are still no signs that a meaningful recovery is ahead for the Brazilian economy.”

“In our view, it is the domestic economy that has to do the heavy lifting today. That is, personal consumption expenditures and gross fixed investment will have to be the sectors of the economy improving during 2017 for growth to return. Lower inflation and lower interest rates will help improve the prospects for these two sectors of the economy, at a time when the global economy is relatively weak and Brazilian currency is very strong, both in nominal and in real terms.”