Political Turbulence Notwithstanding, Temer’s Reforms Have Helped Brazil Emerge Out of Recession 3

Brazil emerged out of recession after 8 consecutive quarters

Since President Michel Temer took office in August 2016, Brazil’s economy has recorded some positive economic indicator readings, despite the current political turbulence. Inflation is falling and the economy finally emerged out of recession in 1Q17 after 8 consecutive quarters of declining growth.

Temer’s pro-market economic reforms, along with the rebound in commodity prices, seem to be paying off for Brazil. According to a recent report by the IBGE, Brazil’s Statistics Bureau, the economy registered growth of 1% in the first quarter of 2017. The economy of Brazil continues to show signs of recovery. The government expects the economy to grow at 0.5% for 2017.

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Inflation has cooled significantly, from over 8% up to September 2016, to 3.6% as of May 2017. The jobless rate in Brazil also edged down to 13.6% in the quarter ended April 2017.

The Latin American (ILF) economy is also focused in its resolve to enter the OECD (Organization for Economic Co-operation and Development), which is part of its reform agenda according to Finance Minister, Henrique Meirelles.

Economic tailwinds boost equity prices in Brazil

Meirelles sees the markets as “relatively stable.” US-listed stocks of companies such as Ambev S.A. (ABEV), Itaú Unibanco Holding S.A. (ITUB), and Vale S.A. (VALE), have returned 11.02%, 6.8%, and 10.3%, respectively YTD (as of June 12). Petróleo Brasileiro S.A. – Petrobras (PBR), down 17.3% YTD, was weighed down by the political headwinds surrounding the company’s executives.

Overall, economic tailwinds, continue to boost equity prices in Brazil as reflected in the surge of the Brazilian-equity tracking iShares MSCI Brazil Capped ETF (EWZ) which has returned 30.7% to investors over the past year (as of June 12).

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