Brazil’s pension reform proposal returns to the congressional spotlight with a committee of lower house lawmakers opening its analysis of the government’s bill just as the outlook for the economy is deteriorating rapidly.
The special committee convenes after weeks of political delay and a sprinkling of public holidays. From an economic and market perspective, the timing could not be more critical.
The central bank’s weekly survey of nearly 100 financial institutions on Monday showed the median GDP forecast for 2019 fell sharply to 1.49% from 1.71% the week before.
That was the bleakest outlook so far this year for the Brazilian economy. The forecast in January was for 2.55% growth. A string of weak data suggested the economy may have shrunk in the first quarter and is still struggling.
This week the latest purchasing managers index survey of Brazil’s services sector showed activity contracted in April for the first time since September.
The weakening outlook for 2019 suggests this year is something of a write-off economically, despite hopes that investors would be encouraged if social security reform makes progress in Congress.
But hopes on that front have faded also. The Brazilian government recently increased the targeted savings from the overhaul to 1.237 trillion reais (US$ 312 billion) over the next decade, but market expectations of what will eventually be delivered are around half that.
The Special Committee of some 40 lawmakers is expected to begin debate and analysis of the pension reform bill this week and hold 11 public hearings this month before submitting a report, possibly in early June.
Further discussions on the report’s recommendations would then follow, and if all goes smoothly, the committee could vote by the end of June, setting the stage for a vote by the lower house plenary in early July.
Investors have grown more pessimistic in recent weeks. The average estimate of expected savings over the next decade in a Morgan Stanley client poll is now 620 billion reais, compared with 690 billion reais only two months ago. Only 5% of respondents expect approval by the end of June.
The deteriorating outlook has also weighed on Brazilian markets. The real has hovered around 4.00 per dollar since late March, weaker than many analysts predicted earlier in the year.
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