A word from the President
Brazilian economy on its way to bounce back
Osmar Roncolato Pinho
The latest economic indicators still reflect a low growth scenario for the Brazilian economy. In 2017 and 2018, economy growth was weak, of only 1.1%, and projections for 2019 indicate an expansion lower than 1%. But now, rock bottom is a thing of the past.
Looking ahead, one can already glimpse more encouraging signs, which point to a more pronounced recovery of the economy in the upcoming months. A promising combination of factors is in the works and it will favor a consistent recovery process, although at a gradual pace.
Benchmark interest rate and inflation are at their lowest historic levels and the government elected in 2018 has been showing commitment to improve tax grounds and leverage the Brazilian economy competitiveness for the next years. The reforms agenda in progress will contribute to balance public accounts, establishing the foundations for a sustainable growth. In this sense, the pension reform, which is about to be approved by the Congress still this year, is paramount to reduce the fiscal deficit in the long term.
Essential to improve the businesses environment, the tax reform is also part of the government and the Congress priorities agenda, and they are working to approve it until the end of the year. The tax reform proposal provides for the simplification and the reduction of taxes.
The Brazilian tax system is unfair and complex because it distorts the goods and services relative prices, causing the loss of production capacity, the shutting down of companies, and, to sum up, harming economic growth. Brazilian tax burden is one of the world’s highest — 35% of all value generated by the country is consumed by the taxes. Brazil is one of the few countries that do not adopt the Value-Added Tax (VAT), which has the tax selectivity as one of its features.
Furthermore, from the legal point of view, the Brazilian tax framework is a never-ending source of insecurity. Important areas, such as leasing, have been harmed by this framework of legal insecurity and its negative effects on the economy.
At the same time, the economics team is putting to work an ambitious privatizations and concessions program for the infrastructure field, including energy, and it is expected to raise billions of dollars for the public coffers and attract private investments to the country.
In the credit area we had an important improvement: the regulation of the positive register, which makes it possible for end-users to have their own credit score. This way, Brazil is on par with the international best practices for credit. Paired with the interest rate drop, the positive register will contribute to build a more competitive environment for credit concession, which is expected to result in lower costs for the borrower in the long run.
This set of measures and initiatives from the government should strengthen entrepreneurs’ confidence, spreading a positive feeling to other segments, creating a virtuous cycle. Companies will feel more motivated to invest in modernization and production capacity expansion, generating a positive effect on the job level. We still have many challenges to overcome, but Brazil is working to meet stability and sustainable growth again soon.