Bolsonaro’s arrival gives security to Wall Street

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Although Bolsonaro’s boisterous rhetoric worries many in Brazil and Latin America, those who are not worried are the investors

In Brazil, Jair Bolsonaro became president on January 1, 2019. Before the possession of a new president, there is usually uncertainty in the markets, which may be manifested as a lapse in the investment while defining what course will take the government during the government that starts. However, in Brazil, this seems not to be the case.

Leer en español: La llegada de Bolsonaro el da seguridad a Wall Street

After more than a decade of the government of the Workers' Party (PT) in Brazil, investors got used to a government in which the fiscal deficit and the bankruptcy of public companies such as Petrobras were common. Any change would have brought some optimism to Wall Street, which had become disenchanted with Brazil, but this was not the case.

Bolsonaro’s arrival, with his promise to tighten the state's belt, hoping to reduce, spend, and regain fiscal stability, resonated particularly well with the Wall Street public, who cares little for the incendiary speech of one of the most controversial politicians in the region.

Since Bolsonaro won the election in Brazil on October 28, the Brazilian stock market has grown by 5%, becoming the second best option among emerging markets, only behind India.

Growth, but with conditions

During 2018, Brazil was forced to reduce its growth expectations repeatedly. In 2017, the largest economy in South America grew only 1%. A disgrace for an emerging market and the outgoing government of Michel Temer had the responsibility of restoring the vigor of the economy. At the beginning of 2018, according to the Infobae, the analysts' prediction was that in some way, they were going to start overcoming the recession, they affirmed that the Brazilian economy would grow by 2.8%, almost three times what the previous year grow.

Well, throughout the year this prediction had to be reviewed on multiple occasions, the economy did not take flight. Shortly after they cut it to 2.5%, in July they adjusted it to 1.6% and then to 1.3%. Strangely, in November, they improved it to 1.4%, only to leave it again at 1.3% by the end of the year.

Pessimism reigned in Brazil in 2018, just as it did in 2017, which is why any change is welcome.

For 2019, the credit rating firm Fitch Ratings expects the Brazilian economy to grow 2.2% this year. A much more modest prediction than the one in 2018. Nonetheless is still ambitious, because it assumes that the end of the recession will begin. Fitch also forecast a 2.7% growth for Brazil's economy during 2020.

The difference between this and last year's predictions is that it is not modest because there is pessimism around the incoming Bolsonaro's mandate. On the contrary, this is the part that comforts the risk assessors.

Also read: Who wins with the FTA agreement between Chile and Brazil?

"Bolsonaro has continued to advocate for a general business-friendly agenda since winning the second round of presidential elections on October 28. His economic platform included fiscal consolidation, pension reform; simplification of the tax code, privatization and formal independence for the central bank. "The Fitch report states.

On this occasion, doubt about Brazil's growth seems to come from the outside, since much of the economy's performance depends on trade with China, whose participation in the region and continued expansion are still in doubt due to the trade war with the United States.

LatinAmerican Post | Pedro Bernal

Translated from: 'La llegada de Bolsonaro le da seguridad a Wall Street'