The Brazilian central government posts higher-than-expected primary result

The central government posted a BRL 5.2 billion surplus in October, above market expectations (BRL 3.0 billion) and our call (BRL 2.5 billion).

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The central government posted a BRL 5.2 billion surplus in October, above market expectations (BRL 3.0 billion) and our call (BRL 2.5 billion). The surprise came half from higher net-revenues (due to higher revenues and lower transfers to regional governments) and half from lower expenditures (due to lower discretionary expenditure). In the discretionary line, the budget unfreeze announced in September still didn’t affected the current fiscal results. As a consequence, in the next months we should see a stronger increase in the pace of these expenditures as already happened last year (after the tax collection surprise with the repatriation bill).
The 2017 primary result should be a little better than the target of a 159 billion deficit (or -2.4% of GDP). Until year end, better recurrent revenues, surprises in the REFIS/PRT and further lower-than-expected mandatory expenses will likely imply a primary deficit around 150-155 billion (or -2.3% of GDP). Besides the discussions of the pivotal social security reform, the focus should be in 2018 fiscal adjustment, especially to the proposed measures involving public servants, taxation of closed funds and Eletrobras privatization that need to be approved to allow the government to close a gap of around BRL 13 billion to comply with the BRL 159 billion deficit target (considering a 3.0% GDP as in our scenario). It’s worth noticing that the taxation of closed funds is the only one that needs to be approved in Congress until the end of this year to be effective next year (as it has to respect the annuity principle).
According to FGV’s monthly consumer survey, consumer confidence rose 3.7% mom/sa in November, extending gains for the third consecutive month. The improvement was driven by both the current situation index (1.8%) and expectations (4.6%). The percentage of people reporting that jobs are hard to get rose 1.2 p.p. to 93.9%, reinforcing the view that the job market continues to show a sizable slack. Intention to purchase durable goods rose considerably, following five months heading south. The component of expected inflation fell further and reached the lowest level since Oct 2010.

FGV also released its monthly commerce survey. Confidence in the retail sector eased 0.1 p.p. to 92.4, maintaining a 12.1% accumulated gain since August. The stability in November came from a small decline in the current situation index (-0.9%) offset by higher expectations (0.7%).

The consolidated primary budget balance for October (including governments and state-owned companies) will come through tomorrow at 10:30 AM (SP time). We expect a BRL 5.0 billion surplus.


Yesterday, President Peña Nieto held a press conference, in which he announced the resignation of José Antonio Meade as Finance Minister, who later confirmed to the media that he will compete to become the ruling party’s (PRI) presidential candidate. Enrique Ochoa, the PRI’s President, has said that the PRI will not define the candidate until February 2018 (deadline for primary elections). The catch is that the Mexican electoral law forbids political parties to carry out advertisement in mass media (until the primary elections are over), unless it has more than two pre-candidates. Therefore, Meade and the other contenders for the PRI’s presidential candidacy will be able to campaign between December and February. Additionally, we note that Meade was replaced by José Antonio González Anaya, until today PEMEX’s CEO, as the new Finance Minister. Carlos Treviño took the job of CEO at PEMEX, after serving as chief administrative officer. González Anaya has a particularly strong reputation in Mexico, after successful experiences heading PEMEX and IMSS (the Mexican Institute of Social Security). Finally, there was no announcement for the head of the central bank.


The national statistics agency (INE) will publish the industrial activity indicators for the month of October tomorrow at 10:00 AM (SP time). We expect manufacturing production to increase 5.9% from last year (above the median of market expectations of 4.4%, as per Bloomberg), partly aided by a favorable base of comparison.

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Fuente: ITAU

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