Rio de Janeiro : Office - Q2 2017

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The Brazilian economy's rebound is undermined by its political outlook, particularly with regards to the plea bargains that occurred in the first half of the year. Such disclosures have clouded the once optimistic market projections. The latest results presented by the IBC-Br (Central Bank's Economic Activity Index), best known as a preview of the GDP, indicate that there will be large fluctuations, such as the index jumping by 0.15% in April and then dropping by 0.51% in the following month. These kinds of swings are expected to continue for the second half of 2017.

Job creation and retail sales, which clearly indicates stabilization and future recovery, is following the same volatile environment. The deterioration of trust reinforces these movements and their adverse impact, and is reflected in the year-end 2017 GDP forecast (+ 0.25%). The exogenous risk of political factors could affect approvals that will enable the government's long-term tax relief, such as social security reform. In turn, risk and skepticism will set a deflationary process in motion (a projected increase of 3.9% at the end of 2017), thus granting more room for deeper cuts on the Central Bank's part, which may reach as high as 8% later this year.

With regards to the foreign market, the compromise of commodity prices and the perceived difficulties it will take to implement President Trump’s economic agenda have influenced the dollar depreciation in relation to the Brazilian Real. Alongside the preservation of the economic team in an extreme case of the current government's tumble (working as a political crisis reliever), and a more cautious decision from FED on the pace of North-American interest rate cuts tend to maintain a “wellbehaved” currency exchange rate, within the R$ 3.20 – R$ 3.30 range.

Source : Cushman & Wakefield

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